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State fumbles Lottery Row fix

Jantzen Beach residents say strip mall problems swell
by: CHRISTOPHER ONSTOTT Ron Schmidt,  chairman of the Hayden Island Neighborhood Network, stands in front of Dotty's, the first of six video lottery businesses launched or purchased by Oregon Restaurant Services at Jantzen Beach's "Lottery Row." All 12 retailers at the strip center have become video lottery businesses, creating a casino atmosphere.

Neighbors of a vice-ridden 'Lottery Row' at a Jantzen Beach retail strip are losing faith in state officials, after a halfhearted attempt by the Oregon State Lottery to address the problem and a recent gang-related shooting there.

'Enough is enough,' says Kent Craford, who lives in a nearby floating home and has to walk past the complex of 12 video lottery bars with his two children, ages 4 and 6. 'It's perhaps one of the most outrageous abuses of a community by a group of businesses, with the complicity of state agencies, that I've seen.'

State lottery officials vowed in February to revise their regulations, after the Portland Tribune chronicled how Hayden Island Harbor Shops retailers subdivided storefronts at the strip mall near Jantzen Beach SuperCenter to set up side-by-side clones, skirting the state's limit of six video lottery terminals per establishment.

But a citizen advisory committee picked to recommend new regulations was stacked with vested interests and agency employees, and has recommended a draft rule that would leave all 12 lottery retailers in place until at least mid-2015, or until they sell their businesses.

Neighbors cynically note that by then the property is slated to be condemned to make way for the Columbia River Crossing to replace the aging Interstate 5 Bridge and make freeway improvements. Preserving video lottery terminals until then assures maximum condemnation payments to the retailers and strip mall owner, an investment group led by politically connected businessman Gordon Sondland.

Hayden Island neighbors also were stunned to learn that the lottery adopted a regulation in 2002 giving the lottery director authority to keep retailers from cloning their stores to get added video lottery terminals, as occurred at the Jantzen Beach strip mall.

'That's always been around, but they're not enforcing it,' says Ron Schmidt, chairman of the Hayden Island Neighborhood Network, the area's neighborhood association.

'These video poker bars and their landlord are flaunting Oregon law,' Schmidt says. 'It's time for the governor and Legislature to step in and save our community.'

In response to inquiries from reporters and neighbors, and resulting pressure from Gov. John Kitzhaber, Lottery Director Larry Niswender and Lottery Commission Chairman Steven Ungar issued a statement Friday saying the citizens advisory committee is 'actively working onrulemaking to clarifythelottery's authority to limit the number of video lottery retailers in a definedarea.' In addition, they stated, 'Thelottery will aggressively take action if it is determined that anyretailer is in violationof the lottery's laws, rules or contract.'

But the lottery has been reluctant to bite the hand that feeds it since Oregon voters authorized state-sanctioned gambling in 1984. For years, the agency has cultivated close relations with retailers that host lottery games. The dozen retailers on Lottery Row earned the state a tidy $7 million in commissions in 2009-10.

There are some indications that the lottery's own staff encouraged the expansion of Lottery Row. Two sources who have worked on Lottery Row told the Portland Tribune last week that a lottery sales representative suggested at least one Lottery Row business be subdivided into two lottery businesses, to double the number of allowed video lottery terminals.

Niswender says he knew nothing about that, and Ungar promised to investigate.

Gambling bonanza

Jantzen Beach is lucrative territory for the state lottery because Washington doesn't offer video lottery games and Vancouver residents flock across the state line to gamble. Lottery Row shops also offer cheap prices on cigarettes, alcohol and food to attract gamblers and keep retailers from running afoul of the Oregon Constitutional ban on private casinos. The lottery has decreed that retailers aren't casinos if they get at least half their sales from non-lottery goods and services, even if those are subsidized to promote gambling.

Albert Perreard, who owned Cafe del Toro before it was converted from a restaurant into a lottery bar, says a manager at a neighboring Lottery Row bar told him he could sell cigarettes below cost because he got a 'kickback' from the tobacco company. 'They just negotiated a deal that was bigger than the loss they had on each carton,' he says.

Oregon Restaurant Services, owner of the Dotty's chain, pioneered the use of faux 'delis' that make most of their profits from video lottery terminals. Starting in 2002, the company amassed six Lottery Row establishments, by buying up and converting existing businesses and subdividing its shops. The CJ's chain, which copied the Dotty's formula, opened three side-by-side lottery delis at Lottery Row in 2009, in a former Mongolian restaurant.

Alberta Phillips worked for six years on Lottery Row as a cook, bartender and bookkeeper, and once felt safe enough to walk home alone late at night after work. But that was before all 12 of the storefronts operated lottery terminals.

'The island was a great place to work and a great place to live,' Phillips says. 'And all of a sudden all it became was a gambling area.'

Sometimes two or three people would hit her up for spare change as she walked in front of the shops.

'You'll have them outside begging for money and then running inside with a dollar bill to shove it into a lottery machine,' she says.

About two and a half years ago, someone tried to steal her purse as she left work after an early shift. 'That was a real eye-opener, to have someone try and mug you in broad daylight,' Phillips says.

Now, when she visits a friend who works there, she makes sure to park right in front of the bar.

Ungar and Niswender vowed in February to put the Lottery Row issue 'on the front burner' and revisit the administrative rules. In a prepared statement, they wrote: 'The lottery's staff and its commission recognize and take very seriously our duty of vigilance, to protect the lottery's mission and reputation.'

Niswender followed up with a March 1 letter to video lottery retailers saying that if one of them seeks to divide their business or open an adjacent lottery business, the lottery would allow no more than six video lottery terminals between the two sites. That's essentially the terms of the 2002 regulation.

Since 2002, a series of lottery directors granted retailers licenses to establish side-by-side lottery businesses if they could show they were separate businesses, with different employees, utilities, bookkeeping, and so forth, Niswender said.

'They had to satisfy us they were operating totally individually, not as a joint business,' he says.

Oregon Restaurant Services and CJs satisfied the lottery's requirements.

Stressing that the 2002 regulation will now be enforced gives retailers fair warning that things will be changing, Niswender says. He subsequently turned down a request to add video lottery terminals to a convenience store at a strip center two blocks north of Lottery Row. Three of the existing five businesses already offer video lottery terminals.

Stacking the deck

It's unclear if the lottery will be so aggressive with existing lottery retailers.

The day after the letter went out, the lottery named a 12-person advisory committee to recommend additional regulations. Oregon Restaurant Services was invited to put a representative on the committee, but the Hayden Island Neighborhood Network, which represents the surrounding community, was not.

The committee includes six lottery staff members, the lottery's legal adviser and two other members from the gaming industry: a second lottery retailer; and the Oregon Restaurant and Lodging Association, which represents lottery retailers and negotiates their master contract with the lottery. The committee also includes someone from the Portland Police Bureau and one person to represent the general public, public relations consultant Stephen Cassell.

Cassell, who lives in Johns Landing, says he wondered why he was the only citizen representative on the committee.

State Rep. Tina Kotek, D-Portland, who represents Hayden Island, was shocked that the lottery picked Oregon Restaurant Services for the committee. 'So one of the persons on the work group is one of the owners? That's really inappropriate,' she says.

Niswender seemed surprised to hear the advisory group's composition being questioned. 'I thought it was a pretty well-balanced group,' he says, 'that had interests on both sides.'

In an email, Ungar writes that the advisory group appears settled on a draft rule that would restrict video lottery to no more than half the storefronts in a strip center, but would basically grandfather-in existing lottery retailers.

'This means that if and when any of the retailers at the Jantzen Beach strip mall sell or close their businesses for any reason, the proposed new rules will apply to any new applicant, thereby reducing the number of retailers through attrition,' Ungar wrote.

Niswender says it's possible, under the proposed new regulation, that the lottery could reduce the number of lottery businesses at Lottery Row when the next round of operating contracts come up for renewal, in June 2015.

'There would be some that would not be allowed to continue to operate there,' he says.

Schmidt, the neighborhood association leader, doubts the committee's recommendation will do anything to help the island.