Friday, November 21, 2008

Independent study challenges NIGC’s Class II figures

The Oklahoma Indian Gaming Association has released an independent study that shows the National Indian Gaming Commission underestimated the cost of implementing Class II regulations by $137.2 million.

The NIGC issued a cost-benefit study prepared by Policy Navigation Group on Sept. 24 prior to its adoption of new Class II regulations establishing technical standards and Minimum Internal Controls (MICs).

The study’s purpose was “to provide a comprehensive estimate of the social benefits and costs” of proposed Class II gaming regulations. The study was meant “to update and to supplement” an earlier independent study by economist Dr. Alan Meister on the potential impact of the same Class II regulations, which the NIGC had commissioned earlier this year.

OIGA hired Meister in turn to review the Policy Navigation Groups’ work. Meister has extensive experience analyzing economic issues related to the gaming industry, especially Indian gaming and online gaming. His work has included economic and fiscal impact analyses, industry and market analyses, assessments of regulatory policies, analyses of Tribal-State gaming compacts and revenue sharing, feasibility studies, surveys, and expert testimony in litigation and regulatory matters. He has also conducted independent, academic research on Indian gaming and is the author of the annual Indian Gaming Industry Report.

“When the NIGC published its cost-benefit Study on Sept. 24, 2008, we were surprised at the very low level of negative impacts found by the study – so low that we decided that an independent analysis was needed,” David Qualls, OIGA chairman, said in a press release.

The NIGC’s cost-benefit study found that the Class II MICS and Technical Standards would only impose negative costs of $7.8 million over 10 years. Meister’s study found that the negative economic impacts could be as high as $145 million in hardware costs alone.

“Our member tribes had expressed concerns for over a year that these regulations were seriously flawed and would impose significant, unnecessary costs on our tribal gaming operations. This independent assessment shows our concerns were justified and that the NIGC has purposely ignored those concerns,” Qualls said.

Oklahoma has around 60 percent of all the Class II gaming machines in the country and will be hard hit by the costs of compliance with the new regulations, which will include upgrading current machines or buying new ones.

In his executive summary, Meister said he was asked to review and comment on the methodologies and conclusions of the Policy Navigation Groups’ cost-benefit study especially as it related to his earlier study. He found a number of shortcomings, including a lack of transparency; questionable assumptions; unsupported/speculative assumptions; assumptions contradicted by available information; biased assumptions; omission or minimization of negative impacts on tribes; mischaracterizations of results from his earlier report; and lack of an adequate basis for determining whether the proposed regulations are a “major rule” within the meaning of the Small Business Regulatory Enforcement Fairness Act.

The NIGC used the cost-benefit study as a justification for declaring the regulations to not be a “major rule,” and for not conducting additional consultation with tribes or allowing for congressional oversight hearings, according to the press release.

“These shortcomings raise significant doubts about the reliability of the Cost-Benefit Study’s quantitative results and qualitative conclusions. Therefore, policymakers should be cognizant of these shortcomings when considering the impact of the proposed Class II gaming regulations,” Meister said.

The Class II MICS and Technical Standards regulations were made final and published by the NIGC in the Federal Register on Oct. 10; they became effective on Nov. 10.
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