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CONSIDERATION OF AMENDMENTS TO THE CHULA VISTA GAMING PLAN TO INCREASE MAXIMUM NUMBER OF GAMING TABLES FROM 18 T0 20 AND RELATED CHANGES
(Includes public hearing for Item A and related Item B)
A. RESOLUTION NO. 2015-056 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING AMENDMENTS TO THE CHULA VISTA GAMING PLAN TO INCREASE MAXIMUM NUMBER OF GAMING TABLES FROM 18 TO 20, UP TO 15 TABLES OF ANY ONE CLASS, AND RELATED CHANGES, INCLUDING A FIVE YEAR OPERATING AGREEMENT
B. RESOLUTION NO. 2015-057 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA RATIFYING CHIEF DAVID BEJARANO'S APPROVAL OF NEW OWNERS POSSESSING FINANCIAL INTEREST IN THE GAMING OPERATIONS AND CARDROOM LICENSE OF VILLAGE CLUB CARD ROOM
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RECOMMENDED ACTION
Recommended Action
Council conduct the public hearing and adopt the resolutions.
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SUMMARY
This staff report and associate items are jointly submitted by the Police Department and the City Attorney's Office.
In connection with its proposed move to a new facility on Bay Boulevard, the Village Club Card Room has proposed amendments to the City's Gaming Plan to (1) increase the maximum number of allowed tables from 18 to 20; and (2) increase to 15 the number of tables that it can operate as "Class II" tables. Class II tables allow more players per table through "backline" betting. In consideration of this, the Village Cardroom has also proposed a base quarterly license tax per table of $7,100. Council approval of this item would also allow the Village Cardroom to operate on these terms for 5 years with the approval of an administrative amendment to its existing CUP. Council approval of this item would be contingent upon the State Department of Justice, Division of Gambling Control also providing its approval.
This item also proposes City Council ratification of Ryan Stone, Rodney F. Stone, Masis Kevorkian, and Kermit Schayltz as new "interest holders" in the Village Cardroom. These interests are held through ownership of the land and new card room facilities being developed on Bay Boulevard, and have been previously reviewed and approved by the Chief of Police. If a direct interest in the gaming license is sought in the future, these parties would need to obtain further City approval, as well as State approval, for this type of interest.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed project for compliance with the California Environmental Quality Act (CEQA) and has determined that the project qualifies for a Class 1 Categorical Exemption pursuant to 15301 (Use of Existing Facilities) of the State CEQA Guidelines. The proposed project consists of negligible or no expansion of an existing use. In addition, the Development Services Director has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
History of Card Rooms in California
Card rooms are one of California's oldest forms of legal gambling with operations ranging from "mom and pop" storefronts, to larger, more sophisticated establishments. Of the 80 or so card rooms in California, the largest is the Commerce Club, with over 200 tables. Historically, card clubs were regulated by local governments. Beginning in the mid-1980s the State gradually increased its regulatory oversight. The stated primary purpose of this increased oversight by the State was to attempt to prevent criminal activity from being associated with these businesses.
In 1998, then Attorney General Daniel Lungren and Senate Pro Tem Bill Lockyer introduced and passed the California Gambling Control Act. (SB 8 was enacted; the language is in Business and Professions Code: 19800 - 19887.) The Act developed the California Gambling Control Commission and the Bureau of Gambling Control in the California Department of Justice. The Commission and the Bureau are responsible for the development of policy, regulatory oversight and enforcement of the States gaming laws at California card rooms.
With these changes, California card rooms are now regulated at both the local and state levels.
History of Chula Vista Gaming Plan
Prior to enactment of the City's Gaming Plan in 1995 card room operations were regulated by way of City ordinance. The ordinance was amended by Council on six different occasions between 1977 and 1995 for various reasons.
The Gaming Plan concept was introduced to the Council on November 28, 1995, because the City Attorney's Office determined that then pending state laws would have the effect of pre-empting local control by City code. By creating a structure under the City code where future changes would be adopted by resolution, the Gaming Plan preserved local Chula Vista authority over its card room operations. This made it so that the City Council is authorized to adopt or make amendments to the Chula Vista Gaming Plan by resolution after a public hearing. Under this revised structure, the initial Gaming Plan was adopted in February 1996. In 1998, the Gaming Plan was amended at the request of Council to eliminate the issuance of additional licenses without a vote of the people. At the time, there were 4 total licenses issued in the City. Two were held by the Chula Vista Bay Club, Inc., and two were held by Harvey Souza.
In 2000, the Gaming Plan was amended again, this time to eliminate 2 of the outstanding 4 licenses and consolidate the remaining two licenses under Mr. Souza's ownership. This was accomplished through Mr. Souza acquiring 2 licenses from Chula Vista Bay Club, Inc., and immediately turning them into the City. Other updates at this time included: 1) expanding the allowed hours of operation; 2) allowing more types of games to be played; 3) increasing bet limits; 4) allowing the service of alcohol; 5) increasing license tax fees; 6) and enhancing employee screening and security requirements.
In 2009, consistent with state law changes, the maximum number of card tables allowed to operate was increased in the Gaming Plan from 12 to 16.
In 2012, again consistent with state law changes, the maximum number of card tables was increased in the Gaming Plan from 16 to 18.
Village Club Card Room
Village Club Card Room owns the only consolidated card room gaming license issued by the City of Chula Vista (which is technically considered as two licenses under the Gaming Plan) and is the only gaming operation within the Chula Vista jurisdiction (location: 429 Broadway). As a police-regulated business, the Village Club has a solid track record of compliance with city regulations and positive interaction with the Police Department. The business was opened by Mr. Souza's father, and has been operating at its current location since 1946. Mr. Souza has been managing the business since 1963. Village Card Room currently operates 14 tables at its Broadway location.
Proposed Gaming Plan Changes
Village Club has requested amendments to the Gaming Plan in anticipation of operating its business at a new location located at 271 and 285 Bay Boulevard.
Specifically, Mr. Souza has requested that staff present amendments to the Chula Vista Gaming Plan as follows:
· Increasing the maximum number of gaming tables from 18 to 20.
In 2013 the State Legislature amended the rules regarding the maximum number of tables and permitted the addition of 2 extra tables to those already in existence as of 2013. See Business and Professions Code § 19961.06(b).
· Increasing the maximum number of tables allowed to run Class IA and Class I games from 9 to 15. Under the proposed amendments, a maximum number of fifteen tables can be used to conduct Class II games (backline betting games such as "pai gow poker," "no bust 21st century blackjack 4.0" and all versions of "21st century blackjack"); and a maximum of fifteen tables will be allowed to conduct Class IA games (higher betting limits for non-backline betting games such as "caribbean stud poker", "hold 'em poker", "pineapple poker" or "pineapple high-low split") at any one time. At no time can more than 20 tables be operated
These changes have been requested by Village Club in order to have more flexibility for gaming operations.
In addition, to ensure that no parking issues arise with regard to the new operation, the Gaming Plan has been clarified to state that regardless of the maximum number of tables or players allowed under the Gaming Plan, at no time can the number of players exceed the maximum number allowed under the conditional use permit for the premises. This maximum number is 234 patrons at the gaming tables.
Pending Conditional Use Permit Modification
Village Club was issued a conditional use permit (CUP) for this location in 2012 for 18 tables and plans to move to this new location as soon as its tenant improvements are completed.
Village Club has applied for a CUP amendment which is being processed administratively for the increase from 18 to 20 tables. This staff level process is expected to completed within 3 weeks of City Council action on this item.
In consideration for these changes Village Club has proposed a base gaming license tax per table of $7,100 per table per quarter, for every table licensed and permitted, regardless of the "Class" of games played. The current rates are $4,950 for Class I games, $7,425 for Class IA games, and $9,900 for Class II games. The new tax amount per table, applied to the current 14 tables, would increase the Village Club's quarterly tax payment from $94,050 to $99,400, an increase of $5,350 per quarter. Increasing the number of tables to 20 would increase the quarterly tax payment by an additional $42,600, resulting in a total quarterly payment of $142,000. The base tax of $7,100 per table will be subject to an annual increase of 3%, beginning July 1, 2016. This is a reduction to the previous annual increase requirement of 5%.
The terms of the amended Gaming Plan shall be also be reflected and implemented as contemplated in Section 5.5 thereof by way of a written operating agreement. This agreement shall require Village Club Card Room interest holders to abide by the Gaming Plan, accept all its provisions, and agree not to challenge the same. The operating agreement shall allow Village Club to operate for 5 years on these terms, with the possibility of extension on the same or modified terms. This agreement will be implemented by the City Manager as a condition precedent to opening at the Bay Boulevard site.
Police Department Review of Gaming Operations
The Police Department has always been the primary staff involved with card room regulations due to the amount of cash involved in business operations and the related possibility of criminal activities. Over the years, the Police Department has actively monitored Village Club in terms of security requirements and public safety. It has also worked closely with the California Department of Justice Division of Gambling Control.
Village Club has not had excessive calls for service at its Broadway location and the Police Department does not expect this to change when it moves to the Bay Boulevard site. The few citizen complaints received regarding Village Club have been with regard to the street parking of patrons which staff expects to be fully resolved when the new location becomes operational.
The Police Department has also reviewed and approved the Village Club security plan as required by the Gaming Plan.
Police Department concerns regarding a potential increase in vehicle-related emergency calls has been addressed with adequate parking spaces and areas, ingress and egress, and parking lot cameras and security.
Once Village Club moves its operations to 271/285 Bay Boulevard the Police Department will continue to monitor Card Room activities at the new location to ensure compliance with Card Room regulations, particularly security requirements. As required by the Gaming Plan, the Police will also conduct background checks on all new Card Room employees.
California Department of Justice Approval
The City Council approval of the Gaming Plan is contingent on the approval of the Bureau of Gambling Control in the California Department of Justice.
The Bureau will also inspect the new card room operation on Bay Boulevard once construction is finalized.
Ratification of Chief's Approval of New Partners Owning Bay Boulevard Property
The Gaming Plan requires Police of Chief approval, by way of background check, of any persons having a financial interest in the card room including property owners. This approval must be ratified by the City Council pursuant to the Gaming Plan.
The proposed new Card Room location at 271 and 285 Bay Boulevard is owned by VC Bay Properties LLC. This entity was formed by Mr. Souza. He has since sold a 50% interest in VC Bay Properties LLC to a new ownership group. The new owners in VC Bay Properties LLC are: 1) Ryan Stone; 2) Rodney F. Stone; 3) Masis Kevorkian; and 4) Kermit Schayltz.
Chief David Bejarano has approved the new owners listed above as possessing a financial interest in Village Club Card Room's cardroom license and gaming operations after reviewing their applications and conducting background checks.
Police Department staff has made inquiries with regard to the other gaming establishments these new interest holders are involved in and according to the information they were able to obtain there are no significant public safety interests implicated by their involvement in these operations.
Staff is requesting that the City Council ratify this approval by resolution.
The new interest holders in the Village Card Room real estate understand they will have to re-apply for approval with the Chief of Police if and when they propose to obtain a direct interest in Village Club's gaming license. This action would again be subject to ratification by City Council. It would also require prior approval of the California Department of Justice Bureau of Gambling Control.
DECISION-MAKER CONFLICT
Staff has reviewed the Councilmember's real estate holdings within Chula Vista and has determined that no property is within 500-foot of the project location. Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
CURRENT YEAR FISCAL IMPACT
There will be an increase in the amount of gaming table license taxes that Village Club is obligated to pay once they relocate and can expand operations. The new tax amount per table, applied to the current 14 tables, would increase the Village Club's quarterly tax obligation from $94,050 to $99,400, an increase of $5,350 per quarter. Increasing the number of licensed tables to 20 would increase the quarterly tax obligation by an additional $42,600, resulting in a total quarterly payment of $142,000.
ONGOING FISCAL IMPACT
There will be an increase in the amount of gaming table license taxes that Village Club is obligated to pay once they relocate and can expand operations. The new tax amount per table, applied to the current 14 tables, would increase the Village Club's quarterly tax obligation from $94,050 to $99,400, an increase of $5,350 per quarter. Increasing the number of licensed tables to 20 would increase the quarterly tax obligation by an additional $42,600, resulting in a total quarterly payment of $142,000.
ATTACHMENTS
1. Resolution (A);
2. Copy of amendments to the Chula Vista Gaming Plan (red-lined for Council's review and attached to Resolution); and
3. Resolution (B).
Staff Contact:
Chance Hawkins, Deputy City Attorney