San Jose’s big gamble with Measure H might be illegal

Seventy-three percent of San Jose voters went all-in for more card room tables last November. But state officials say that increasing that number might be illegal.

At the end of last year, San Jose voters overwhelmingly approved Measure H, which allows local casinos to increase the number of tables if they agreed to pay the city 1.5% more in taxes — money that supports the city’s parks, libraries and public safety.

The casinos will pay higher taxes. But now they might not get the extra tables.

At its April meeting, the California Gambling Control Commission ruled that both of the city’s card rooms—Bay 101 Casino and Casino M8trix—already reached 49 tables each. That’s the maximum amount of tables per state law, according to California Gambling Control Commission spokesperson Fred Castano.

The Bureau of Gambling Control, part of the state’s Department of Justice, ensures gambling is regulated legally in California, while the Gambling Control Commission regulates licensing.

“The commission believes an increase in the maximum number of tables per card room in San Jose beyond 49 is inconsistent with the Gambling Control Act,” Castano told San José Spotlight. He declined to comment further, citing pending litigation.

Bay 101 sued the state last month to force the commission to overturn its ruling and allow more tables inside their facilities. The suit is still pending.

“Casino M8trix is utterly disappointed by how Measure H has turned out,” Rob Lindo, vice president of Casino M8trix, told San José Spotlight. “Sadly for the residents of San Jose, the city has botched both Measure H and their attempt to secure more gaming tables for the card rooms.”

The text of Measure H promised voters a maximum of 128 tables—64 each at Bay 101 and Casino M8trix—when the San Jose City Council voted 10-1 in August to place the measure on the November ballot. Mayor Sam Liccardo cast the lone dissenting vote.

“I opposed the measure because I’ve consistently opposed the expansion of gaming in San Jose,” Liccardo said in a statement to San José Spotlight. “I have no objection to the gaming commission’s decision.”

Besides the additional tables, Measure H increased the gross revenue tax for the city’s two card rooms to 16.5%, expected to bring roughly $15 million annually to the city’s general fund. According to analysis from the city, money from the measure would go to fire protection, disaster preparedness, emergency response, street repair, youth programs and homeless prevention.

Under the state’s Gambling Control Act, a city is prohibited from increasing the number of tables in a card room by 25% or more than what it had on Jan. 1, 1996.

In 1992, San Jose adopted an ordinance that limited the number of tables in each card room to 40. But in 1996, the city claimed no limits on how many tables a card room could have, just a citywide limit of 181. The state considers 40 to be the city’s limit and based its decision on that number.

City administrators are defending their ballot measure and fighting back.

“We believe the decision by the state is incorrect and ignores the actions of our City Council to ‘bank’ additional gaming tables in the city,” said Deputy City Manager Lee Wilcox. He said the city will fight the state’s decision.

The city attorney’s office declined to comment, citing pending litigation.

Not only does the state’s ruling put the additional tables—and revenue—in jeopardy, the city’s casinos are still required to pay the taxes stipulated in the measure.

San Jose and its casinos banked on increased revenue from the measure, as the pandemic hit the gambling industry hard. Social distancing measures greatly reduced casino capacities in gambling hotspots across the country, including Las Vegas and Atlantic City.

Following COVID-19 closures, estimated revenue from the city’s pre-Measure H card room tax plummeted from $18.9 million in 2019 to $13.5 million in 2020. According to city documents, the money went to the general fund to support public safety, libraries and parks.

According to Lindo and Bay 101 General Manager Ron Werner, the new tables from Measure H would have created at least 100 new jobs for each of their casinos.

“Obviously, there’s fewer people hired if there’s fewer tables,” Werner told San José Spotlight.

Lindo said the prospect of paying taxes without getting any benefit in return is an “anti-business strategy.”

“This is a fairness issue,” Lindo said. “Without an equitable resolution, this will erode the business community’s faith in local government.”

Contact Lloyd Alaban at [email protected] or follow @lloydalaban on Twitter.