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A New York appellate court Wednesday unanimously upheld two of three legs of the broadest expansion of gambling in state history, enacted by the Legislature in 2001 in the wake of the Sept. 11, 2001 terrorist attacks and a plunge in the state’s economy. In a 5-0 ruling, the Appellate Division, 3rd Department, declared that the diversion of revenues from the use of Video Lottery Terminals (VLT) was unconstitutional, but left the door open to use of the machines if the proceeds are allocated exclusively to education. When the bill was passed on Oct. 25, 2001, casino industry experts estimated the state could realize $1 billion annually. It authorized the governor to enter into tribal-state compacts for the operation of up to six casinos in the Catskills and upstate, the installation of VLTs at eight racetracks and the state’s entry into the multistate Mega Millions lottery. While upholding the casino and multistate lottery options, the 3rd Department panel found the use of the video lottery machines unconstitutional because the legislation allowed a percentage of their revenues to support the horse racing industry, thus violating the state constitution’s restriction on the use of the “net proceeds ” of state-operated lotteries to support education. “[A] holding that the Legislature has the discretion to divert a portion of lottery revenues to noneducational purposes, regardless of the laudable nature of those purposes, would defeat the requirement that the amendment authorizing state-run lotteries be construed narrowly, as an exception to the general ban on gambling, ” wrote Justice Thomas E. Mercure in Dalton v. Pataki/Karr v. Pataki, 94493, a 51-page opinion. The state constitution generally bans gambling but has been amended over the years to permit several forms of gaming. Gov. Pataki and the Republican-controlled Senate have proposed further expansion of gambling to generate the billions of dollars needed to meet a New York Court of Appeals’ mandate to revamp the educational funding system. The 3rd Department rejected the arguments of the gambling opponent plaintiffs that the VLTs are nothing more than high-tech slot machines that do not fit within the exception for state-run lotteries in the constitution’s general ban on gambling. “We agree with defendants that VLTs are simply a new method of presenting lottery games to the public and, therefore, the operation of VLTs by the state falls within the constitutional exception, ” Justice Mercure said. The use of electronic tickets, as opposed to paper ones traditionally used in lotteries, was permissible, the judge said. However, the requirement that the VLT vendors dedicate a portion of their fees to horse breeding funds and to enhance purses at racetracks violated the restriction limiting the use of proceeds from state-run lotteries to fund education, Judge Mercure said in the opinion. He was joined by Presiding Justice Anthony V. Cardona and Justices Edward O. Spain, Karen K. Peters and Anthony J. Carpinello. The state’s share of revenues from the VLTs at racetracks was projected to be $300 million to $400 million a year when the bill was passed.

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