HB2679

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

"Chapter

STATE LOTTERY

§ -1 Definitions. For the purposes of this chapter, unless the context clearly requires otherwise:

"Commission" means the state lottery commission established by this chapter.

"Director" means the director of the state lottery established by this chapter.

"Lottery" or "state lottery" means the lottery established and operated pursuant to this chapter.

"Online game" means a lottery game in which a player pays a fee to a lottery retailer and selects a combination of digits, numbers, or symbols, type and amount of play, and receives a computer-generated ticket with those selections, and the lottery separately draws or selects the winning combination or combinations.

§ -2 State lottery commission created; membership; terms; vacancies; chair; quorum. (a) There is created the state lottery commission to consist of five members appointed by the governor with the consent of the senate, pursuant to section 26-34. The governor shall designate one member of the commission to serve as chair at the governor's pleasure. A majority of the members shall constitute a quorum for the transaction of business.

(b) Members shall not be compensated but shall be reimbursed for actual costs incurred in carrying out the duties of the commission, including travel expenses.

(c) The lottery commission shall be attached to the department of commerce and consumer affairs for administrative purposes.

§ -3 Powers and duties of commission; when legislative approval required. The commission shall have the following powers and duties:

(1) Adopt rules in accordance with chapter 91 governing the establishment and operation of a state lottery to begin operation of the lottery as soon as practicable and to produce the maximum amount of net revenues for the State consonant with the dignity of the State and the general welfare of the people. The rules shall include, but shall not be limited to, the following:

(A) The type of lottery to be conducted, which may include the selling of tickets or shares; provided that the tickets or shares may not be sold over the Internet. The use of electronic or mechanical devices or video terminals that allow for individual play against those devices or terminals shall be prohibited. An affirmative vote of sixty per cent of both houses of the legislature shall be required before offering any game allowing or requiring a player to become eligible for a prize or to otherwise play any portion of the game by interacting with any device or terminal involving digital, video, or other electronic representations of any game of chance, including scratch tickets, pull-tabs, bingo, poker or other cards, dice, roulette, keno, or slot machines;

(B) The price, or prices, of tickets or shares in the lottery;

(D) The manner of selecting the winning tickets or shares, except as limited by subparagraph (A);

(E) The manner and time of payment of prizes to the holder of winning tickets or shares which, at the director's option, may be paid in lump sum amounts or installments over a period of years;

(F) The frequency of the drawings or selections of winning tickets or shares. Approval of the legislature shall be required before conducting any online game in which the drawing or selection of winning tickets occurs more frequently than once every twenty-four hours;

(G) Without limit as to number, the type or types of locations at which tickets or shares may be sold;

(H) The method to be used in selling tickets or shares, except as limited by subparagraph (A);

(I) The licensing of agents to sell or distribute tickets or shares, except that a person under the age of eighteen shall not be licensed as an agent;

(J) The manner and amount of compensation, if any, to be paid licensed sales agents necessary to provide for the adequate availability of tickets or shares to prospective buyers and for the convenience of the public;

(K) The apportionment of the total revenues accruing from the sale of lottery tickets or shares and from all other sources among:

(i) The payment of prizes to the holders of winning tickets or shares, which shall not be less than forty-five per cent of the gross annual revenue from the lottery;

(ii) Transfers to the lottery administrative account created under section ‑26; and

(iii) Transfers to the general fund; and

(L) Any other matters necessary or desirable for the efficient and economical operation and administration of the lottery and for the convenience of the purchasers of tickets or shares and the holders of winning tickets or shares;

(2) Ensure that in each place authorized to sell lottery tickets or shares, on the back of the ticket or share, and in any advertising or promotion there shall be conspicuously displayed an estimate of the probability of purchasing a winning ticket;

(3) Amend, repeal, or supplement any rules from time to time as the commission deems necessary or desirable; and

(4) Advise and make recommendations to the director for the operation and administration of the lottery.

§ -4 New games. (a) The lottery commission shall conduct new games intended to generate additional moneys sufficient to cover the distributions under section -23. No game may be conducted under this section before January 1, 2009. No game may be conducted under this section after December 31, 2010, unless no game is required to be conducted after the distributions cease under section -23.

(b) For the purposes of this section, the lottery may accept and market prize promotions provided in conjunction with private-sector marketing efforts.

§ -5 Director; appointment; salary; duties. The governor shall appoint the director with the consent of the senate. The director shall serve at the pleasure of the governor and shall receive a salary to be determined by the governor, but in no case may the director's salary be more than ninety per cent of the salary of the governor. The director shall:

(1) Supervise and administer the operation of the lottery in accordance with this chapter and with the rules of the commission;

(2) Without regard to chapters 76, 78, and 89, appoint deputy and assistant directors that may be required to carry out the functions and duties of director;

(3) Appoint professional, technical, and clerical assistants and employees that may be necessary to perform the duties imposed by this chapter; provided that chapters 76, 78, and 89, shall not apply to any employees engaged in undercover audit, investigative work, or security operations but shall apply to other employees appointed by the director;

(4) In accordance with this chapter and the rules of the commission, license as agents to sell or distribute lottery tickets any persons, in the director's opinion, that will best serve the public convenience and promote the sale of tickets or shares. The director may require a bond from any licensed agent, in any amount provided in the rules of the commission. Every licensed agent shall prominently display a license, or a copy, as provided in the rules of the commission. License fees may be established by the commission, and, if established, shall be deposited in the state lottery account created under section ‑22;

(5) Confer regularly as necessary or desirable with the commission on the operation and administration of the lottery; make available for inspection by the commission, upon request, all books, records, files, and other information and documents of the lottery; and advise the commission and recommend on any matters that the director deems necessary and advisable to improve the operation and administration of the lottery;

(6) Enter into contracts for the operation of the lottery, or any part thereof, and for the promotion of the lottery. No contract awarded or entered into by the director may be assigned by the holder except by specific approval of the commission; provided that nothing in this chapter authorizes the director to enter into public contracts for the regular and permanent administration of the lottery after the initial development and implementation;

(7) Certify quarterly to the director of finance and the commission a full and complete statement of lottery revenues, prize disbursements, and other expenses for the preceding quarter;

(8) Carry on a continuous study and investigation of the lottery throughout the State to:

(A) Discover any defects in this chapter or rules adopted under this chapter that may give rise to any abuse in the administration and operation of the lottery or any evasion of this chapter or rules;

(B) Formulate recommendations for changes in this chapter and rules adopted under this chapter to prevent such abuses and evasions;

(C) Guard against the use of this chapter and rules adopted under this chapter to hide the carrying on of professional gambling and crime; and

(D) Ensure that this chapter and rules adopted under this chapter are administered to serve the true purposes of this chapter;

(9) Carry on continuous study and investigation of:

(A) The operation and the administration of similar laws in other states or countries;

(B) The operation of an additional game or games for the benefit of a particular program or purpose;

(D) Any federal laws that may affect the operation of the lottery; and

(E) The reaction of the residents of this State to existing and potential features of the lottery with a view to recommending changes that will tend to serve the purposes of this chapter;

(10) Have all enforcement powers necessary to implement this chapter; and

(11) Perform all other actions necessary to carry out the purposes of this chapter.

§ -6 Licenses for lottery sales agents; factors; "person" defined. (a) No license as an agent to sell lottery tickets or shares may be issued to any person to engage in business exclusively as a lottery sales agent. Before issuing a license, the director shall consider the following factors:

(1) Financial responsibility and security of the person and the person's business or activity;

(2) Accessibility of the person's place of business or activity to the public;

(3) Sufficiency of existing licenses to serve the public convenience; and

(4) Volume of expected sales.

(b) For purposes of this section, the term "person" means an individual, association, corporation, club, trust, estate, society, company, joint stock company, receiver, trustee, assignee, referee, or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, and any combination of individuals. "Person" does not mean any department, commission, agency, or instrumentality of the State, or any county or agency or instrumentality thereof.

§ -7 License as authority to act. Any person licensed as provided in this chapter shall be hereby authorized and empowered to act as a lottery sales agent.

§ -8 Denial, suspension, and revocation of licenses. (a) The director may deny an application for, or suspend or revoke, after notice and hearing, any license issued pursuant to this chapter. A license may be temporarily suspended by the director without prior notice, pending any prosecution, investigation, or hearing. A license may be suspended or revoked or an application may be denied by the director for one or more of the following reasons:

(1) Failure to account for lottery tickets received or the proceeds of the sale of lottery tickets or to file a bond if required by the director or to comply with the instructions of the director concerning the licensed activity;

(2) For a violation of this chapter or the rules of the commission;

(3) Failure to file any return or report or to keep records or to pay any tax required by this chapter;

(4) Fraud, deceit, misrepresentation, or conduct prejudicial to public confidence in the state lottery;

(5) That the number of lottery tickets sold by the lottery sales agent is insufficient to meet administrative costs or that public convenience is adequately served by other licensees;

(6) A material change, after issuance of the license, with respect to any matters required to be considered by the director under section -6.

(b) For the purpose of reviewing any application for a license and for considering the denial, suspension, or revocation of any license, the director may consider any prior criminal conduct of the applicant or licensee.

§ -9 Assignments. (a) Regarding assignments:

(1) Except under paragraph (2), no right of any person to a prize drawn is assignable, except that payment of any prize drawn may be paid to the estate of a deceased prize winner, and except that any person pursuant to an appropriate judicial order may be paid the prize to which the winner is entitled;

(2) Regarding voluntary assignment:

(A) The payment of all or part of the remainder of an annuity may be assigned to another person, pursuant to a voluntary assignment of the right to receive future annual prize payments, if:

(i) The winner is a resident of the State; and

(ii) The assignment is made pursuant to an appropriate judicial order of the district court of the district in which the prize winner resides.

If the prize winner is not a resident of the State, the winner must seek an appropriate order from the first circuit court.

(B) If there is a voluntary assignment under subparagraph (A), a copy of the petition for an order under subparagraph (A) and all notices of any hearing in the matter shall be served on the attorney general no later than ten days before any hearing or entry of any order;

(C) The court receiving the petition may issue an order approving the assignment and directing the director to pay to the assignee the remainder or portion of an annuity so assigned upon finding that all of the following conditions have been met:

(i) The assignment has been memorialized in writing and executed by the assignor and is subject to state law;

(ii) The assignor provides a sworn declaration to the court attesting to the facts that the assignor has had the opportunity to be represented by independent legal counsel in connection with the assignment, has received independent financial and tax advice concerning the effects of the assignment, and is of sound mind and not acting under duress, and the court makes findings determining so;

(iii) The assignee has provided a one-page written disclosure statement that sets forth in bold-face type, fourteen point or larger, the payments being assigned by amount and payment dates, the purchase price, or loan amount being paid; the interest rate or rate of discount to present value, assuming monthly compounding and funding on the contract date; and the amount, if any, of any origination or closing fees that will be charged to the lottery winner. The disclosure statement shall also advise the winner that the winner should consult with and rely upon the advice of independent legal or financial advisors regarding the potential federal and state tax consequences of the transaction; and

(iv) The proposed assignment does not and will not include or cover payments or portions of payments subject to set offs pursuant to section -25 unless appropriate provision is made in the order to satisfy the obligations giving rise to the set off;

(D) The commission may intervene as of right in any proceeding under this section but shall not be deemed an indispensable or necessary party;

(3) The director shall not pay the assignee an amount in excess of the annual payment entitled to the assignor;

(4) The commission may adopt rules pertaining to the assignment of prizes under this section, including recovery of actual costs incurred by the commission. The recovery of actual costs shall be deducted from the initial annuity payment made to the assignee;

(5) No voluntary assignment under this section shall be effective unless and until the Internal Revenue Service provides a ruling that declares that the voluntary assignment of prizes will not affect the federal income tax treatment of prize winners who do not assign their prizes. If at any time the Internal Revenue Service or a court of competent jurisdiction provides a determination letter, revenue ruling, other public ruling of the Internal Revenue Service or published decision to any state lottery or state lottery prize winner declaring that the voluntary assignment of prizes will effect the federal income tax treatment of prize winners who do not assign their prizes, the director shall immediately file a copy of that letter, ruling, or published decision with the governor. No further voluntary assignments may be allowed after the date the ruling, letter, or published decision is filed;

(6) The occurrence of any event described in paragraph (5) does not render invalid or ineffective assignments validly made and approved pursuant to an appropriate judicial order before the occurrence of any such event; and

(7) The commission and the director shall be discharged of all further liability upon payment of a prize pursuant to this section.

§ -10 Maximum price of ticket or share limited; sale by other than licensed agent prohibited. A person shall not sell a ticket or share at a price greater than that fixed by rule of the commission. No person other than a licensed lottery sales agent shall sell lottery tickets, except that nothing in this section prevents any person from giving lottery tickets or shares to another as a gift.

§ -11 Sale to minor prohibited; exception; penalties. (a) A ticket or share shall not be sold to any person under the age of eighteen; provided that this shall not be deemed to prohibit the purchase of a ticket or share for the purpose of making a gift by a person eighteen years of age or older to a person younger than the age of eighteen.

(b) Any licensee who knowingly sells or offers to sell a lottery ticket or share to any person under the age of eighteen shall be guilty of a misdemeanor.

(c) If a person under the age of eighteen directly purchases a ticket in violation of this section, that person shall be guilty of a misdemeanor. No prize shall be paid to that person and the prize money otherwise payable on the ticket shall be treated as unclaimed pursuant to section -18.

§ -12 Prohibited acts; penalty. (a) A person shall not alter or forge a lottery ticket. A person shall not claim a lottery prize or share of a lottery prize by means of fraud, deceit, or misrepresentation. A person shall not conspire, aid, abet, or agree to aid another person or persons to claim a lottery prize or share of a lottery prize by means of fraud, deceit, or misrepresentation.

(b) A violation of this section shall be a class B felony.

§ -13 Penalty for unlicensed activity. (a) Any person who conducts any activity for which a license is required by this chapter or by rule of the commission, without the required license, shall be guilty of a class B felony.

(b) Any corporation who conducts any activity for which a license is required by this chapter or by rule of the commission, without the required license, may be punished by forfeiture of its corporate charter, in addition to the other penalties set forth in this section.

§ -14 Penalty for false or misleading statement or entry or failure to produce documents. Any person, in any application for a license or in any book or record required to be maintained or in any report required to be submitted, who makes any false or misleading statement, or makes any false or misleading entry or wilfully fails to maintain or make any entry required to be maintained or made, or who wilfully refuses to produce for inspection any book, record, or document required to be maintained or made by federal or state law shall be guilty of a misdemeanor and, notwithstanding section 706-640, shall be subject to a fine of not less than $ but not more than $ .

§ -15 Penalty for violation of chapter; exceptions. Any person who violates this chapter for which no penalty is otherwise provided, or knowingly causes, aids, abets, or conspires with another to cause any person to violate this chapter shall be guilty of a class C felony, except where other penalties are specifically provided for in this chapter.

§ -16 Penalty for violation of rules; exceptions. Any person who violates any rule adopted pursuant to this chapter for which no penalty is otherwise provided, or knowingly causes, aids, abets, or conspires with another to cause any person to violate any rule adopted pursuant to this chapter shall be guilty of a misdemeanor and, notwithstanding section 706-640, shall be subject to a fine of not less than $ but not more than $ , except where other penalties are specifically provided for in this chapter.

§ -17 Persons prohibited from purchasing tickets or shares or receiving prizes; penalty. A ticket or share shall not be purchased by, and a prize shall not be paid to any member of the commission, the director, or an employee of the lottery or to any spouse, child, brother, sister, or parent residing as a member of the same household in the principal place of abode of any member of the commission, the director or an employee of the lottery. A violation of this section is a misdemeanor.

§ -18 Unclaimed prizes. Unclaimed prizes shall be retained in the state lottery account for the person entitled thereto for one hundred eighty days after the drawing in which the prize is won, or after the official end of the game for instant prizes. If no claim is made for the prize within this time, all rights to the prize shall be extinguished, and the prize shall be retained in the state lottery fund for further use as prizes, except that one-third of all unclaimed prize money shall be deposited in the general fund.

§ -19 Deposit of moneys received by agents from sales; power of director; reports. The director, in the director's discretion, may require any or all lottery sales agents to deposit to the credit of the state lottery account in banks designated by the director of finance, all moneys received by those agents from the sale of lottery tickets or shares, less the amount, if any, retained as compensation for the sale of the tickets or shares, and to file with the director reports of their receipts and transactions in the sale of lottery tickets in a form and containing the information as the director may require. The director may make any arrangements for any person, including a bank, to perform any functions, activities, or services in connection with the operation of the lottery as the director may deem advisable pursuant to this chapter and the rules of the commission, and the functions, activities, or services shall constitute lawful functions, activities, and services of that person.

§ -20 Other law inapplicable to sale of tickets or shares. No other law providing any penalty for the sale of lottery tickets or shares or any acts done in connection with a lottery shall apply to the sale of tickets or shares performed pursuant to this chapter.

§ -21 Payment of prizes to minor. If the person entitled to a prize is under the age of eighteen and the prize is less than $5,000, the director may direct payment of the prize by delivery to an adult member of the minor's family or a guardian of the minor of a check or draft payable to the order of the minor. However, if the prize is $5,000 or more, the director may direct payment to the minor by depositing the amount of the prize in any bank to the credit of an adult member of the minor's family or a guardian of the minor as custodian for the minor. The commission and the director shall be discharged of all further liability upon payment of a prize to a minor pursuant to this section.

§ -22 State lottery account created. There is hereby created and established a separate account outside the state treasury, to be known as the state lottery account. The account shall be managed, maintained, and controlled by the commission and shall consist of all revenues received from the sale of lottery tickets or shares, and all other moneys credited or transferred thereto from any other fund or source pursuant to law. No appropriation shall be required to permit expenditures and payment of obligations from the account.

§ -23 Use of moneys in state lottery account limited. The moneys in the state lottery account shall be used only:

(1) For the payment of prizes to the holders of winning lottery tickets or shares;

(2) For purposes of making deposits into the lottery administrative account created under section -26;

(3) For purposes of making deposits into the education construction fund and student achievement fund created in section 302A‑ . For the transition period from July 1, 2009, until and including June 30, 2010, fifty per cent of the moneys not otherwise obligated under this section shall be deposited into the student achievement fund and fifty per cent shall be deposited into the education construction fund. On and after July 1, 2010, until June 30, 2012, seventy-five per cent of the moneys not otherwise obligated shall be deposited into the student achievement fund and twenty-five per cent shall be deposited into the education construction fund. On and after July 1, 2012, all moneys not otherwise obligated under this section shall be placed in the education construction fund;

(4) For the purchase and promotion of lottery games and game-related services; and

(5) For the payment of agent compensation.

§ -24 Methods for payment of prizes by installments. If the director decides to pay any portion of or all of the prizes in the form of installments over a period of years, the director shall provide for the payment of all the installments for any specific lottery game by one, but not both, of the following methods:

(1) The director may enter into contracts with any financially responsible person or firm providing for the payment of the installments; or

(2) The director may establish and maintain a reserve account into which shall be placed sufficient moneys for the director to pay the installments as they become due. The reserve account shall be maintained as a separate and independent fund outside the state treasury.

§ -25 Debts owed to state agency or counties; debt information to lottery commission; prize set off against debts. (a) Any state agency or county that maintains records of debts owed to the State or the county, or that the State is authorized to enforce or collect, may submit debt information to the director in a format specified by the director. State agencies or counties submitting debt information shall provide updates on a regular basis at intervals not to exceed one month and shall be solely responsible for the accuracy of the information.

(b) The director shall include the debt information submitted by state agencies or counties in its validation and prize payment process. The director shall delay payment of a prize exceeding $600 for a period not to exceed two working days, to any person owing a debt to a state agency or county pursuant to the information submitted in subsection (a). The lottery shall contact the state agency or county providing the debt information to verify the debt. The prize shall be paid to the claimant if the debt is not verified by the submitting state agency or county within two working days. If the debt is verified, the prize shall be disbursed pursuant to subsection (c).

(c) Prior to disbursement, any lottery prize exceeding $600 shall be set off against any debts owed by the prize winner to a state agency or county, or that the State is authorized to enforce or collect.

§ -26 Lottery administrative account created. There is hereby created the lottery administrative account in the state treasury. The account shall be managed, controlled, and maintained by the director. The legislature may appropriate moneys from the account for the payment of costs incurred in the operation and administration of the lottery.

§ -27 Post-audits by state auditor. The state auditor shall conduct an annual post-audit of all accounts and transactions of the lottery and any other special post-audits as the state auditor may be directed to conduct.

§ -28 Investigations by attorney general authorized. The attorney general may investigate violations of this chapter and of the criminal laws within this State by the commission, the director, or the director's employees, licensees, or agents.

§ -29 Management review by director of finance. The director of finance may conduct a management review of the commission's lottery operations to assure that:

(1) The manner and time of payment of prizes to the holder of winning tickets or shares is consistent with this chapter and the rules adopted under this chapter;

(2) The apportionment of total revenues accruing from the sale of lottery tickets or shares and from all other sources is consistent with this chapter;

(3) The manner and type of lottery being conducted and incidental expenses are the most efficient and cost-effective; and

(4) The commission is not unnecessarily incurring operating and administrative costs.

In conducting a management review, the director of finance may inspect the books, documents, and records of the commission. Upon completion of a management review, all irregularities shall be reported to the attorney general, the legislature, and the state auditor. The director of finance shall make any recommendations that may be necessary for the most efficient and cost-effective operation of the lottery.

§ -30 Verification by certified public accountant. The director of finance shall select a certified public accountant to verify that:

(1) The manner of selecting the winning tickets or shares is consistent with this chapter; and

(2) The manner and time of payment of prizes to the holder of winning tickets or shares is consistent with this chapter. The cost of these services shall be paid from moneys placed within the lottery administrative account.

§ -31 Enforcement powers of director. The director, the deputy director, assistant directors, and each of the director's investigators, enforcement officers, and inspectors shall have the power, including the power to apply for and execute all warrants and service of process issued by the courts and to arrest, without a warrant, any person or persons found in violation of any of the criminal provisions of this chapter, to enforce this chapter and the criminal laws of this State relating to the conduct of or participation in lottery activities and the manufacturing, importation, transportation, distribution, possession, and sale of equipment or paraphernalia used or for use in connection with the lottery. To the extent set forth in this section, the director shall have the power to investigate violations of and to enforce the provisions of this chapter and to obtain information from and provide information to all other law enforcement agencies.

§ -32 Construction. This chapter shall be liberally construed to carry out the purposes and policies of this chapter."

SECTION 2. Chapter 302A, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§302A- Education construction fund; student achievement fund. (a) The education construction fund is created within the state treasury to be administered by the department. The fund may receive deposits from the state lottery account created under section ‑22. Moneys may be appropriated from the education construction fund:

(1) Exclusively for school construction; and

(2) For any other purpose only if approved by a two-thirds vote of each house of the legislature.

(b) The student achievement fund is created within the state treasury to be administered by the department. The fund may receive deposits from the state lottery account created under section ‑22. Moneys from the student achievement fund shall be appropriated strictly for distribution to school complexes and shall be allocated on an equal per full-time equivalent student basis to each school complex to support the department's student performance standards pursuant to section 302A‑201."

SECTION 3. Section 712-1220, Hawaii Revised Statutes, is amended by amending the definition of "gambling" to read:

"(4) "Gambling". A person engages in gambling if [he] the person stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under [~~his~~] the person's control or influence, upon an agreement or understanding that [he] the person or someone else will receive something of value in the event of a certain outcome. Gambling does not include [~~bona~~]:

(a) Bona fide business transactions valid under the law of contracts, including but not limited to contracts for the purchase or sale at a future date of securities or commodities, and [~~agreements~~];

(b) Agreements to compensate for loss caused by the happening of chance, including but not limited to contracts of indemnity or guaranty and life, health, or accident insurance[.]; or

SECTION 4. 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, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2679
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII