June 23, 2009 — The only way to resolve the ongoing financial dispute between the government and Southland Gaming of the Virgin Islands is through mediation — or a court order, Sen. Carlton "Ital" Dowe said Tuesday.
Dowe explained that his Budget and Appropriations Committee hearing was scheduled before the government decided to file suit against Southland, the company in charge of Video Lottery Terminal (VLT) operations on St. Thomas and St. John. The suit alleges that the company owes millions in back gross receipts taxes and more in video lottery terminal revenues, which VLT officials have said is somewhere in the neighborhood of $20 million.
While a couple of senators said they wouldn’t be asking questions during Tuesday’s meeting because the matter is now in litigation, Dowe said certain issues needed to be fleshed out, and it was the Legislature’s responsibility to look into them.
Tuesday’s meeting was not the first held to discuss the Lottery’s money matters. At a committee meeting in April, Deputy Solicitor General Paul Paquin said the 2003 contract with Southland lays out what percentage of VLT revenues goes to the company, but does not say what percentage is supposed to be remitted to the government. There’s no way for Lottery officials to really know what Southland is collecting since the central hub of VLT operations is located within Southland Gaming, added Lottery’s former acting executive director Lenyse Shomo. (See "Senators: Lottery Issues Remain Unresolved.")
The lawsuit alleges Southland has been paying its retailers before paying the government its fair share of net VLT revenues. That 22 percent is supposed to come out of Southland’s share of net gaming proceeds, and not the government’s, according to the court document.
Also in dispute is a master licensing agreement that exempts Southland from paying gross receipts taxes. The agreement, signed by former Lottery head Paul Flemming and Southland principal Robert Huckabee III, should have been approved by the Lottery Commission, Property and Procurement Commissioner and the governor before it was executed, the lawsuit states.
Southland officials denied most of the government’s claims during Tuesday’s hearing, saying they were "surprised" that the lawsuit was filed. Southland is discussing the gross receipts tax issue with the Bureau of Internal Revenue, Huckabee said, adding that Southland also does not owe the government $20 million.
"When we bid the contract, we were given an RFP (request for proposals), with a fill in the blank," he explained. "They said you bid the price — we filled in the percentage and whatever else we were told to provide. That’s what these numbers here represent. There’s nothing in the contract that says what the government gets, only what Southland gets — and that’s the way we were asked to bid."
The amount of money the government gets every week is based on a sliding scale, Huckabee added. After collecting all the VLT revenues, prizes are taken out first, then the retailers get their 22 percent, then Lottery collects what amounts to about 33 percent, leaving the remainder for Southland, he said.
In an affidavit circulated during Tuesday’s meeting, former Lottery head Austin L.D. Andrews supported Southlands claims. Andrews said he set the retailers’ commissions at 22 percent, with the understanding that Lottery was responsible for paying them out of their chunk of the money.
Senators’ comments on the testimony were mixed, with some being cautious because of the anticipated legal battle, some trying to stay neutral and others saying that the government’s suit was, among other things, an attempt to bring in money to help stave off the current budget shortfall.
There was, however, unanimous concern over one issue — the lack of any formal rules and regulations for VLT operations. Currently, Southland is operating under "guidelines" set back in 2003, according to Paquin, who also said the law doesn’t require an agency to promulgate rules and regulations.
"We have recently prepared rules and regs, and as you know, the governor decided that we were to make that public," Paquin added. "We have received comments, but we have not since that time proceeded with addressing the comments." Putting those in place is a priority, he added.
Southland claimed that V.I. Lottery Commission’s meeting about proposed rules and regulations were held in secret, and that Shomo was "out to get Southland ever since she took the job."
Shomo was absent from Tuesday’s meeting, but sent a letter saying "for the record, every action initiated by me was done with the advice, consent and full support of the V.I. Lottery Commission and the Office of the Attorney General."
In another letter, Attorney General Vincent Frazer explained that government officials testifying at Tuesday’s hearing have been advised not to delve deeply into the matters between the government and Southland, in an effort to "protect the government’s interest in the pending litigation."
Present during Tuesday’s hearing were Sens. Craig W. Barshinger, Dowe, Wayne James, Louis P. Hill, Terrence "Positive" Nelson, Nereida Rivera-O’Reilly, Usie R. Richards, Patrick Simeon Sprauve, Michael Thurland and Alvin L. Williams Jr.
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