HARRISBURG, October 27, 2005 – State Senators Robert Jubelirer (R-Blair) and Vince Fumo (D-Philadelphia) today jointly submitted official comments to the Pennsylvania Gaming Control Board regarding establishment of a Code of Conduct for board members and employees.

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BEFORE THE PENNSYLVANIA GAMING CONTROL BOARD

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By and through their undersigned counsels, Senator Robert C. Jubelirer, President Pro Tempore of the Senate of Pennsylvania, and Vincent J. Fumo, Democratic Chairman of the Senate Appropriations Committee, hereby respectfully submit these comments pursuant to the Board’s Order of October 6, 2005. In so doing, Senators Jubelirer and Fumo seek to share with the Board the unique, bipartisan perspective of two members of the legislature – one who actively developed and supported the legalization of slot machine gaming, and one who opposed the expansion of gambling activities in the Commonwealth. Though differing in their perspectives as to the public policy merits of legalizing slot machine gaming, each strongly support the implementation of an ethical standard that scrupulously ensures that the administration of the Pennsylvania Racehorse Development and Gaming Act is free from actual and perceived bias and impropriety.

While the Board is commended for acknowledging the need to adopt a code of conduct, the proposed code is primarily a recitation of various state laws that are already applicable to most executive agencies and public officials. Accordingly, it is the position of Senators Jubelirer and Fumo that prior to the consideration of any licensing application, the Board should adopt a detailed code that goes beyond applicable statutory law, and at a minimum, contain the following restrictions in a comprehensive code of conduct –

These are basic fundamental safeguards that guide member actions in a manner that prevents circumstances from arising that would otherwise call into question the objectivity or independence of judgement of the Board. The adoption of each safeguard is necessary to protect public confidence in the Board’s oversight of gambling in the Commonwealth. (In support of these comments, Senators Jubelirer and Fumo attached a copy of the New Jersey Casino Control Commission’s Code of Ethics, as revised by the Commission in 2001, to the commentrs submitted to the Pennsylvania Gaming Control Board.) The 27 page model Code provides a clear and comprehensive guide for conduct – applicable to Commission members, employees, consultants and persons appearing before the Commission. The Board would be well served to consult the New Jersey Commission’s policy and adopt a code that is similarly comprehensive.

In its enactment of the Pennsylvania Race Horse Development and Gaming Act (the "Act"), the General Assembly explicitly declared that the primary objective of the Act, "to which all other objectives and purposes are secondary, is to protect the public through the regulation and policing of all activities involving gaming..." 4 Pa.C.S.A. § 1102(1). The notion of elevating the public interest above all other considerations was reinforced by the legislature in its declaration that "the integrity of the regulatory control" of gaming operations was a primary objective and that actions that could "erode public confidence" should be avoided. 4 Pa.C.S.A. § 1101(11).

A comprehensive code-of-conduct is a necessary tool for ensuring public confidence and a high standard of integrity in the regulation and licensing of gaming in the Commonwealth. The Act set this ethical standard by its inclusion of the mandate that each Board member must disqualify himself from any proceeding "in which his or her impartiality may be reasonably questioned." 4 Pa.C.S.A. § 1201(f)(3). Unfortunately, the Board’s proposed code does not provide guidance on how the Board should conduct its business to satisfy this standard nor does the proposed code identify those circumstances that would compel disqualification from a proceeding. It is not suggested that any member of the Board has acted in a manner that is improper. Rather, it is asserted that the Board has not developed minimally adequate safeguards that protect itself from perceived impropriety, bias or conflict of interest. As the state agency statutorily charged with general jurisdiction over all aspects of gaming and responsibility for ensuring the integrity of the acquisition and operation of slot machines (4 Pa.C.S.A.§ 1202(a)) the Board assumes a quasi-judicial role as the primary interpreter of the Act and regulations, the licensing authority for all slot machine manufacturers, suppliers and operators, and the enforcement agency for license compliance. Importantly, because of the unique nature of the Act’s voting requirement (a qualified majority consisting of each legislative appointee and at least one of the three gubernatorial appointees) each individual member of the Board is capable of vetoing any licensing decision. Accordingly, it is appropriate for the Board to adopt a code of conduct that incorporates the same basic safeguards that can be found in the Pennsylvania Code of Judicial Conduct and in the Pennsylvania Public Utility Commission Code of Ethics. See, e.g, Code of Judicial Conduct, 42 Pa.C.S.A.; 66 Pa.C.S.A. § 319.

It is worthwhile noting that many other state jurisdictions that have authorized gaming and have established similar regulatory agencies have adopted comprehensive codes of conduct. See, e.g., New Jersey Casino Control Commission Code of Ethics (revised October 10, 2001), Attachment A; West Virginia Racing Commission Code of Conduct (adopted March 1, 2002); 42 Louisiana Administrative Code § 107; 11 Missouri Administrative Code § 45-1.015; Michigan Administrative Code § 432.204(d); Mississippi Administrative Code § 50-012-002; Illinois Gaming Board Code of Conduct (adopted October 22, 2003).

At its first meeting in January, this Board adopted a resolution that stated that the Board would be governed by the Pennsylvania Ethics Act. See, Transcript, Pennsylvania Gaming Control Board, page 13-14 (December 14, 2004). Though the Board appropriately recognized the need to adopt a standard of conduct, the "adoption" of the Pennsylvania Public Official and Employee Ethics Act did little more than recognize the obvious – that as a state agency, the Board is already subject to the provisions of the Ethics Act. See, 65 Pa.C.S.A. § 1102 (defining public employee, executive-level public employee and governmental body to include state agencies such as the Board). Ten months later, the newly written and proposed code is still little more than a restatement of the various provisions of state laws, such as the Ethics Act, the Adverse Interest Act, and the gaming Act, that already apply to the Board and public officials. Particularly significant is the omission of any remedy or consequence for a willful violation of the propose code of conduct. It is reasonable to expect that the Board will discharge its duties in such a manner as to promote public confidence, and in so doing, avoid all situations and conduct that may appear questionable or improper – even if the conduct does not actually constitute wrongdoing or present an actual conflict of interest. Unfortunately, the proposed Code falls short of achieving this objective.

The following are minimal revisions that Senators Jubelirer and Fumo suggest be adopted by the Board prior to the consideration, review and resolution of any pending license application.

A significant omission in the proposed Code is any restriction on the political activity of a Board member or employee. In its development of the Act, the General Assembly explicitly stated that the oversight of gaming shall be conducted in a "bipartisan" manner that safeguards the public interest. 4 Pa.C.S.A. § 1102(11). In fact, the legislature was so concerned about insulating the regulatory administration of gaming activities from political influence, that it included a provision in the Act that completely prohibits campaign contributions from any applicant or licensed entity to any state candidate, committee or political party. 4 Pa.C.S.A. § 1513. The inclusion of this provision followed the example of at least seven other state jurisdictions that have also recognized the pernicious influence political campaign contributions and activity may have on the oversight of gaming. See, Ind. Stats. § 4-33-10-2.1; Iowa Stats. § 99F.6(4)(a); Kentucky Rev. Stats. § 7(b)(4)-(5); Louisiana LSA-R.S. § 18:1505.2; Nebraska Stats. § 49-1469.01; New Jersey § 5:12-138; Virginia § 59.1-375, 376.

Accordingly, it is consistent with the objectives of the Act, as well as prudent public policy, to strictly limit the political activities of those who are charged with overseeing the licensing and regulation of gaming operations in the Commonwealth. Board members and employees interpret the Act, consider licensing applications, make licensing decisions, and enforce the Act by issuing sanctions as may be warranted. In this quasi-judicial role, voting Board members are analogous to judges, and like judges, Board members should refrain from political activity and adhere to a code of conduct that prohibits Board members from soliciting campaign contributions, campaigning, endorsing candidates for public office, or attending political events such as fund-raisers. Under the existing code of conduct, there is no provision that prohibits a member of the Board from soliciting campaign donations, on behalf of a candidate or committee, from any law firm, attorney, lobbyist, agent or anyone else who may appear before the Board on behalf of an applicant or licensee.

In contrast to the Board’s proposed code, the Pennsylvania Judicial Code of Conduct recognizes the unique role of the trier of fact and law and the utmost necessity to ensure actual and the appearance of objectivity and impartiality by prohibiting political activity. See, Canon 7 (prohibiting holding any political party office, make political speeches, endorse a candidate, solicit or make a political contribution, or otherwise engage in any other political activity). Even members of the Pennsylvania Public Utility Commission are prohibited from soliciting funds for any political purpose while in office. 66 Pa.C.S.A. § 319(10). Other state gaming boards have also recognized the danger of permitting gaming regulators to engage in political activity. See, e.g., N.J.S.A. § 5:12-59(h) (New Jersey prohibits Board members, employees or agents from soliciting campaign contributions, actively participating in a campaign, or using the office for the purpose of influencing an election); 42 Louisiana Administrative Code § 107(A)(5) (The Louisiana Gaming Board prohibits any Board member from attempting to affect the result of an election, directly or indirectly advise any person to make a political campaign contribution, or take part in any political campaign); Michigan Administrative Code § 432.204d(14) (Michigan Code of Conduct explicitly prohibits gaming board members from engaging in political activity or politically related activity); West Virginia Racing Commission Code of Conduct, Rule 9(6) (West Virginia Racing Commission, charged with regulating slot operations, has adopted a code that prohibits any Board member or employee from soliciting funds for political purposes).

In its present form, the Board’s proposed code fails to recognize the impropriety of a Board member engaging in political activity – particularly fund-raising. As political appointees, each member of the Board is in a unique position to use his office to politically benefit their respective appointing authority or candidate of his choice. Fund-raising, appearing at political events, endorsing candidates by a Board member (especially during a period in which license applications may be pending before the Board) creates a strong perception of political favoritism and mistrust. The failure of the proposed code to address these matters represents a serious threat to perception of impartiality and if uncorrected may erode public confidence in the Commonwealth’s system of gaming oversight.

The proposed code does not prohibit a member of the Board from directly soliciting money contributions from any applicant, gaming company or even a slot operator on behalf of a charity, school, fraternal organization, hospital, civic group or community project. Without any such restriction, a Board member, who can support or prevent the issuance of a slot operator license, could create an impression of impropriety by soliciting money from any party over which he has oversight. In its present format, a Board member is not prevented from soliciting money from slot machine manufacturers, suppliers, operators or lobbyist on behalf of his college alma mater, church, neighborhood school or community park. Though well meaning, solicitations by a public official who exercises quasi-judicial functions, may create the perception that their decisions could be influenced by either making or refusing to make a donations in response to a Board member request.

In contrast to the proposed code, the Code of Ethics applicable to the Pennsylvania Public Utility Commission directly bans members of the Utility Commission from engaging in any form of fund-raising while in office. See, 66 Pa.C.S.A. § 319(10). Similarly, the Pennsylvania Judicial Code of Conduct also includes a similar prohibition. See, Canon 5. In fact, other gaming jurisdictions have also recognized the potential for abuse that may exist if gaming regulators were permitted to raise money from regulated companies while in office, and as such have prohibited such actions. See, e.g., Missouri Gaming Commission Code of Ethics, 11 Mo. Code of State Regulations 45-1.015(6) (no member of the Commission shall "solicit anything of value"); New Jersey Gaming Control Commission Code of Ethics, Article III, E(3) (Adopted 2001) (prohibiting the "solicitation of anything of value" for any education, religious, charitable, fraternal or civic organization).

The proposed code prohibits any Board member from accepting anything of monetary value, including a loan or gift, with the donor’s "understanding that a Board member’s vote or official action would be influenced thereby." Though it is reasonable to prohibit a Board member from accepting a gift with the understanding that it will influence a vote, such a limited restriction does not safeguard against the appearance of impropriety. A gift or loan from an applicant, licensed entity, lobbyist, law firm or representative of the applicant or licensed entity days prior to a vote on a pending matter, even without a clear understanding that the gift or loan was made for the purpose of influencing a vote, may create circumstances that would otherwise give rise to the appearance of impropriety. For example, a golfing trip paid by an slot operator applicant or its lobbyist, a week prior to the vote on the license, may certainly create the impression that Board member’s vote could be influenced – thereby undermining public confidence in the objectivity and independence of the Board.

Other gaming jurisdictions take a more absolute stand against the receipt of gifts or gratuities. For example, Michigan Gaming Control Board members are prohibited from receiving any gift, gratuity, compensation, travel, lodging, or anything of value from any applicant or licensee. See, M.C.L.A. § 432.204d(d)(10). The New Jersey Gaming Control Commission has a similar preclusion that prohibits a member from accepting anything, service or favor from any person subject to licensure or approval by the Commission. See, New Jersey Gaming Commission Code of Ethics, Article III(G)(2). The Missouri Administrative Code also prohibits gifts from any applicant, licensee, representative or agent of a licensee. 11 Missouri Administrative Code § 45-1.015(2). Lastly, the West Virginia Racing Commission also prohibits its members from receiving anything of value. See, West Virginia Racing Commission Code of Conduct, 5(B). Each of these provisions are intended to protect the reputation of the gaming regulators as well as public confidence in the impartiality of the commissions by preventing situations in which innocent conduct may appear questionable – even in the absence of any wrongdoing.

Though the Board has included a clear prohibition against ex parte communications with an interested party, the provision does not provide any guidance as to who is an "interested party." It is suggested that the Board define the term to explicitly include any person who is acting on behalf of an applicant or licensee, including, an attorney, lobbyist, agent or representative. Typically, an ex parte communication involves a conversation, letter or pleading that is submitted to a presiding officer or the trier of fact or law without notice or contestation by any party that is adverse to the litigation or proceeding. Black’s Law Dictionary, 517 (5^th Ed. 1979). The inclusion of the term "interested parties" appears to suggest that this prohibition applies to persons who are not actual parties to the litigation or proceeding. While there is no objection to expanding the limitation, it is suggested that the code should be redrafted to properly define the term "interested parties."

Additionally, it is important to understand the limitation of the ex parte prohibition – as it applies, by definition, to only those communications that are pertinent to a pending proceeding or litigation. Accordingly, communications that may occur prior to the commencement of a proceeding, the filing of an application or the adoption of a regulation, are not similarly limited or disclosed. Any non-public communications between a member of the Board and a representative of a potential applicant or licensee may create an unfavorable perception of the Board’s objectivity. Meetings with applicants, lobbyists, attorneys or other agents of a regulated entity that are not directly a party to a pending proceeding should not be an occasion for a Board member to express his opinion on the merits of any matter pending before the Board. Both the Code of Ethics applicable to the Pennsylvania Public Utility Commission, as well as the Code of Judicial Conduct prohibit expressing views on the merits of any pending matter outside of a public session. See, 4 Pa.C.S.A. § 319 (4); Cannon of Judicial Conduct 3(a)(6).

Recognizing the necessity of preventing even the appearance of impropriety, the New Jersey gaming statute includes a provision that requires any meeting with a gaming regulator to occur only within the business premises of the gaming Commission. N.J.S.A. § 5:12-59(e)(6). The New Jersey law requires all such meetings to be listed in a publically available log. Id. Significantly, unlike the New Jersey Commission members, members of the Pennsylvania Board are permitted to maintain employment outside of their public office – thereby increasing the likelihood that their private employment, positions or affiliations may bring them into contact with persons who may be potential applicants or licensees under the Board’s regulatory oversight, thus greater reason to ensure such conversations occur on the Board’s premises.

A significant omission in the provision of the proposed code related to "restricted activities" is the failure to explicitly apply the restrictions to employees and independent contractors of the Board. A code of conduct that does not extend its reach to include employees and independent contractors – both of whom extert considerable influence on the policies, decisions and opinions adopted by the Board, would leave open substantial opportunity for those who help in crafting Board policies and decisions to engage in activities that may call into question the impartiality of the Board and give rise to conflicts of interest. Members of the Board should be able to rely upon the loyalty staff and consultants without concern that there may exist undisclosed conflicts of interests, or other actions that may caste the Board in an unfavorable light. Political activity, acceptance of gifts, solicitation of money from applicants or licensees are all circumstances that may call into question the objectivity and impartiality of the actions Board staff and advisors.

The Pennsylvania Public Utility Commission Code of Ethics as well as the Pennsylvania Judicial Code of Conduct extends provisions related to loyalty, conflicts of interest and behavior to staff and personnel. 66 Pa.C.S.A. § 319(a)(5) (requires staff and personnel subject to the direction of the Utility Commission to observe the standards of fidelity and diligence that apply to Commissioners and administrative law judges); Code of Judicial Conduct, Cannon 3(b)(2) (a judge is required to ensure that his staff and court personnel observe the standards of fidelity and diligence that apply to the judge). In fact, both the New Jersey Casino Control Commission Code of Ethics and the Louisiana Administrative Code that is applicable to the Louisiana Gaming Control Board apply code of conduct limitations to employees, contractors and consultants. For example, the New Jersey Code of Ethics states that consultants shall be subject to the New jersey Conflicts of Interests Law, and imposes the restrictions related to financial interests, charitable solicitations, political activity, outside employment and other conduct limitations to contractual consultants. See, New Jersey Casino Control Commission Code of Ethics, Article VIII, Attachment A. The Louisiana Administrative Code also contains a provision that addresses conflicting employment or representation by consultants, in addition to applying most of the other provisions to employees of the Louisiana Gaming Control Board. See, 42 Louisiana Administrative Code § 107(A)(7)(b). It would be appropriate for the Board to following these examples and act to ensure that personnel and independent contracts, such as consultants, accountants, attorneys and investigators are brought within the parameters of the code designed to prevent conflicts of interest and appearances of bias.

The provisions contained in the proposed code which relate to voting conflicts simply restate section 1201 (f)(3) of the gaming Act, without providing any additional clarity or delineation of those circumstance that may arise to the level that may justify when a Board member’s "impartiality may be reasonably questioned." A comprehensive code of conduct would appropriately attempt to describe those circumstances in which a member’s objectivity or independent judgment would be reasonably called into question – such as, if a member has a vocational, family, social or financial relationship with a slot license applicant. Significantly, the possibility that such circumstances may occur are heightened as a result of the fact that Board members may have outside employment and corporate affiliations which may involve potential license applicants. While many other state jurisdictions prohibit outside employment, Pennsylvania has not. Accordingly, the need for a comprehensive recusal / disqualification provisions within a code of conduct is necessary to ensure public confidence in the objectivity and impartiality of the Board’s decision and actions.

The Code of Ethics applicable to members of the New Jersey Gaming Control Commission draws a direct connection between the standard recusal for a judge, and the disqualification standard for a member of the gaming Commission. The Code of Ethics provides that a member shall disqualify himself in a proceeding in "circumstances requiring disqualification of a judge pursuant to the provisions of the code of Judicial Conduct." See, New Jersey Gaming Control Commission Code of Ethics, Article III(H)(1), Attachment A. The provision describes circumstances that would necessitate disqualification to include "instances where he...has a personal bias or prejudice concerning a party or personal knowledge of disputed evidentiary facts concerning the proceeding." Id. The Pennsylvania Judicial Code of Conduct includes similar disqualification criteria, including circumstances when a judge or a family member may have a financial interest in the proceeding, or interest that could be affected by the outcome of the proceeding. See, Judicial Code of Ethics, Cannon 3(C).

The nature of an adequate code of conduct is prophylactic – to prevent situations and circumstances from arising that may call into question the Board’s objectivity, impartiality and independence of judgement. It is not material for any particular conflict or action to rise to the level of wrongdoing, it is merely sufficient for the appearance of impropriety to erode public confidence. This risk is particularly acute due to the unique nature of the Act’s voting mandate, requiring the consent of every legislatively appointed Board member, and at least one of the gubernatorial appointees to support any licensing or regulatory decision. As a result of this veto authority, the actions of each individual Board member has a more direct and immediate impact upon the perceptions and appearances of the Board’s decisions.

WHEREFORE, for the foregoing reasons, Senators Jubelirer and Fumo respectfully request this Board to accept these proposed comments and revisions to is proposed Code of Conduct, and adopt a new code that reflects these revisions and the comprehensive nature of the attached New Jersey Gaming Control Commission Code of Ethics.

Respectfully Submitted,

Signed by Sen. Jubelirer and Sen. Fumo