Boom in slot rooms creates headaches, cost for city

Boom in slot rooms creates headaches, cost for city

Police, code enforcement, legal counsel, municipal court personnel, and staffers from multiple city of Beaumont departments affected by a steady swell of game rooms popping up with and without city permitting are unifying their individual experiences in the hopes of tackling the illegal activity that comes with “game room” business operation.

The plan, according to those involved in the transformation, is to first update the city’s code of ordinances to address some of the noted deficiencies making regulation difficult.

“We’ve obviously identified some issues we want to work on,” says Beaumont Planning and Community Development Director Chris Boone. Among the noted issues the city employees plan to address is the cost to administer permitting and providing city decals to game rooms, or businesses hosting more than five “8-liner” casino-like gaming machines, as well as gaming sites, defined as businesses with any gaming machines on site. Although gambling on casino-like games is illegal in this state, Texas law mandates gaming sites as legal business models, although the purveyors are precluded from paying out cash rewards for “winning” at the games, instead only allowed to offer a “prize” valued at no more than $5.

“There’s obviously two sides – zoning and permitting, which we handle,” he said, “then there’s the criminal side of it; we don’t handle that, the police department does. But we’re hearing they have some issues they want to address, too.”

According to Beaumont Police Department Sgt. Bobby Anderson, who is tasked with gaming site regulation for the law enforcement agency, his ultimate goal is to curb the serious crimes taking place at these gaming dens – arsons, robberies, thefts, assaults – all of which seem to occur more often at addresses of known game rooms than other sites throughout the city. Anderson said he isn’t naïve enough to believe anyone is operating a game room without illegally paying out cash, and asserts that it would be virtually impossible to operate a business and attract any customers without offering an opportunity to “win.”

“I’ve never seen anyone walk out of one of those game rooms with a ‘prize,’” Anderson said. In fact, according to him, in more than a year of game room inspections that brought him to dozens of sites, maybe two even had a prize in the building. “Then there was a layer of dust 2 inches thick on it.”

But in order to prove cash payouts, the game room operators have to be caught in the act – or someone has to provide eyewitness testimony.

“No one ever says they get paid,” Anderson said.

“There’s quite a bit of frustration on our behalf,” Boone said. The state statute will not allow banning the businesses altogether, as evidenced by recent litigation currently underway in Fort Worth, where game room operators have sued the city to relax ordinances regulating operation and permitting. And finding a way to adequately regulate a business model that skirts – very poorly – the limits of the law as it relates to illegal gambling is no easy task, city officials say.

“We’re limited, to some degree, by the state statute,” Boone added. “Sometimes it depends on how ordinances are worded. Our hands are somewhat tied by the state.

“That’s a challenge we got – they’re allowed, but were having difficulty making sure all that’s legal.”

The Coin Operated Machine Law provides statewide regulation of gaming machines through the state Comptroller of Public Accounts, which provides licensing for the machines as well as taxes the games through an occupation tax. Under normal conditions, the comptroller deposits 25 percent of the revenue in the foundation school fund and 75 percent of the revenue goes to the general revenue fund.

For starters, the state receives $60 per year per game for an “occupation tax” on all games registered through their office. According to comptroller data, more than 3,700 games are registered to Jefferson and Orange counties alone.

For sole proprietors of gaming sites, a “registration certificate” costs an annual $150, regardless of the number of machines attributed to the site. For a few dollars more, applicants can instead acquire a “general business license” (GBL) at a cost of $200 for an applicant with not more than 50 coin-operated machines, $400 for an applicant with at least 51 but not more than 200 coin-operated machines, and $500 for an applicant with more than 200 coin-operated machines. The added bonus of the GBL is that the comptroller does not track where those games ultimately end up.

“GBLs are not location specific, and once a coin-operated machine has the appropriate decal, it can be placed anywhere in the state,” Comptroller General Counsel Information/Program Specialist John Ramirez reported. “GBL holders provide a valid location at the time of their original license and each year at renewal; however, they are not required to update the locations of their machines throughout the year unless specifically requested to do so by the Comptroller’s Office.”

When mapping out gaming machines in Texas, comptroller records do not reflect GBLs because, according to Ramirez, “we cannot guarantee the validity of the location information.”

Not being able to guarantee machine location, actual owner and business operator is a big problem for regulators like BPD’s Sgt. Anderson. And although he cannot change the actions of the state office, he is certain there are changes that can be made to Beaumont’s ordinance that would allow municipal regulators to follow the chain of command at these businesses. Currently, due to the manner in which game room operators are required to report to the state and city regulators, it is hard to track who actually owns what, which equipment is being utilized where, and who is actually running the businesses operating “for entertainment only” gaming sites that are teeming with clientele at all hours of the day and night.

For example, Magic Fiesta, located at 2949 College St., reports Juan Garcia as the legal operator for purposes of background checks and permitting through the city, but reports Davis Nguyen as the sole owner of the gaming site at the comptroller’s office. Comptroller data reveals that Magic Fiesta is permitted for 40 gaming machines, but it also holds GBL certification, so there is no way to know where those 40 machines are actually located.

Anderson believes that if the city were to enact ordinance clauses for gaming sites similar to those in effect for sexually oriented businesses (SOBs), they could at least get a handle on who is operating these off-kilter enterprises within the city. As of now, the gaming site permitting definition designates the applicant as “the intended operator, occupant or owner of the gaming site and/or gaming machines,” and no other person is scrutinized. Oftentimes, as is the case with Magic Fiesta, the operator is not the same owner presented to the state monitoring office. 

Under SOB application specs, however, every employee must be vetted by the city.

“All the time, we go into these game rooms and there are people under the care, custody and control of the place but they say they don’t work there,” Anderson said. City ordinance can fix that. 

Maybe, Boone said.

“Our legal department has to be sure we can do some of these things and still work within the statute,” Boone said. “We’re going to propose anything we can up to the state statute. Of course, if that’s what the council wants.”

Mayor Becky Ames, council chair, said she is totally on board with beefing up regulatory control of gaming sites through an ordinance update.

“I talked with the council recently … about gaming facilities,” Ames said. “I would like for us to start looking at what we can do legally because there’s so many of these gaming facilities being built or applied for in our city.”

Go down the street, especially in the North and South ends of Beaumont, and it’s hard to miss a game room or two — or more.

“That honestly does not add, I believe, to the benefit of those communities,” Ames said. “They’re just out of control. Just unbelievable.”

Ames said that the city recently denied a zoning change special use permit “for a large” proposed game room in the city, and is confident the city officials will continue to deny those permits if the costs to the city continue to outweigh the benefit.

“We’ve known there were some issues,” Boone said. “We’ve now kicked off the process of everyone looking at the notes we have – and looking at best practices of other cities … to get the best ordinance we can get. We’re anxious to come up with some proposed revisions to the ordinance to get a better handle on this.”

“It’s fair to say the day-to-day administration of the ordinance itself is more expensive and time-consuming than we thought, and police have some related criminal activity issues,” Boone said. “Absolutely,” he added, “we’re definitely expending more than we’re taking in.”

For game rooms with more than five games, the application and permitting fee paid to the city is just $100; it’s only $50 for sites with five or fewer machines. Small penalties are taken into the city’s coffers for infractions, such as requiring regulators to “tag” or cut off access to machines – $5 each; replacing a lost permit or decal – $15.

“On top of our normal workload, this ended up taking a lot of time and expense we didn’t expect,” Boone said of setting fees dirt-cheap when the ordinance was first passed in 2014. “The process is pretty sound internally, but the decals themselves ended up being pretty expensive, so it’s probably costing us a lot of money on the tags, just to start.”

“We’ve got about 50 of these things permitted, and a lot more not permitted,” Boone added of the scale of regulation currently needed for gaming sites in the city. “Then, we end up with a ‘whack-a-mole’ situation – some are registered and some are not … some are a shell, no one on the hook for ownership we can trace, you may have something where it’s a person in name only.

“There’s just so many of them – obviously business is very good.