Zappalas hold posts at casino association

Questions about their influence arise amid legislative debate
October 25, 2009 12:00 am

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By Tracie Mauriello / Pittsburgh Post-Gazette

HARRISBURG -- During the final days of state budget negotiations, a flurry of press releases was sent to media, letters were sent to lawmakers and radio ads were sent over airwaves, all advocating low tax rates and license fees for casino table games.

One statement threatened that four large casinos would sue the state if smaller ones were allowed to increase the number of slot machines at their locations.

The communications all emanated from The Pennsylvania Casino Association, which has been run for the last two years by former state Supreme Court Chief Justice Stephen A. Zappala Sr. and his daughter Michele Zappala Peck, who is running for Allegheny Common Pleas Court.

Although The Pennsylvania Casino Association incorporated in May 2007, it's been virtually invisible until this month even though it is in the hands of a powerful and prominent political family with ties to Harrisburg power brokers.

Officials of the Pittsburgh-based nonprofit trade association confirmed in interviews last week that the former chief justice served as its executive director for two years and now is its chairman. Mrs. Zappala Peck is its operations director.

Those names aren't mentioned on incorporation papers or tax filings, which require a listing of officers and key employees. Neither do they appear in a slew of press releases or advertisements issued this month to influence legislation that would legalize table games and set taxes and fees for casinos that choose to offer them.

Government watchdogs and antigambling groups say the Zappalas' quiet involvement gives the appearance of undue influence. That perception, they said, breeds public distrust of the courts that hear cases involving the gaming industry.

"What connections does a Supreme Court justice have to bring to an organization that does things that sure look a lot like lobbying? The obvious answer -- and it might not be the right one -- is to lobby the court," said Barry Kauffman, executive director of Common Cause Pennsylvania.

"If you hire somebody like that, you're hiring him for his connections. It sure looks like the gaming folks wanted somebody who has played with the Supreme Court and also has connections with the Legislature. He's the perfect go-between."

Mr. Zappala has close ties to prominent lawmakers, including former Sen. Vince Fumo who wrote the state gaming law. He presided at Mr. Fumo's second wedding and wrote a letter on his behalf to the judge who last year sentenced him to 55 months in prison after a federal corruption conviction.

Mr. Zappala declined to comment and Mrs. Zappala Peck did not respond to telephone messages left last week.

"It seems to me that they're doing a pretty good job of trying to remain invisible, but the stench is great," said Dianne M. Berlin, coordinator of the antigaming coalition CasinoFreePA. "Gaming interests try to keep this kind of thing under the carpet so people don't really know how much has been tainted in our state."

Chuck Hardy, who represents Pittsburgh's The Rivers casino on the association's three-member board, signed the 2007 and 2008 tax returns that give the association federal tax-exempt status. He said he was never involved in any discussion about keeping the Zappala name off public records.

Mr. Hardy -- who works for the Philadelphia law firm Sprague & Sprague and said he is counsel for Philadelphia's SugarHouse casino -- said the 990 tax forms were prepared by an accountant. He said he didn't believe Mr. Zappala needed to be included on the required listing of officers, directors, trustees and key employees because he wasn't "the kind of officer you needed to report."

IRS filing instructions, however, stipulate that executive directors are among those who must be listed along with officers who have voting rights and employees who control an organization's activities or finances.

That information is required because tax forms are public documents that allow the public to see what nonprofits are doing and who is running them, said IRS spokesman David Stewart.

"Tax forms are information gathering tools," he said. "They're there for transparency, so people can look up a charity to learn a little bit about them and decide if they want to give money to them."

The IRS allows leeway for honest mistakes and omissions, but can impose fines or revoke nonprofit status for organizations that intentionally provide inaccurate information, Mr. Stewart said.

Mr. Hardy said he didn't know the extent of Mr. Zappala's or Mrs. Zappala Peck's involvement except that they had been with the association from the beginning.

In addition to working for the association, Mrs. Zappala Peck is a special master for the Allegheny County Common Pleas Court's Board of Viewers, which hears appeals of property assessment and eminent domain cases.

Her name appears on the ballot for Allegheny Common Pleas Court, but she has stopped campaigning to make way for other Democratic candidates.

She reported on her candidate's statement of financial interest that she works for The Pennsylvania Casino Association but did not disclose -- and was not required to disclose -- how much she is paid.

Ken Smukler, who was hired three weeks ago, said the association pays Mrs. Zappala Peck and her father, but he did not know their salaries.

Mr. Smukler's own pay is $16,000 a month as a part-time consultant for the association. His title is executive director, the same as Mr. Zappala's was until three weeks ago when Mr. Smukler was hired.

Now Mr. Zappala is chairman, an officer who sets the association's direction but is not a voting member of the board, Mr. Smukler said.

The association has been inconspicuous until this month, but that doesn't mean it's been inactive, Mr. Smukler said.

Its official purpose, according to tax filings, is to "improve the business conditions in the gaming industry generally and to create a better understanding of the gaming industry by the general public, elected officials, other decision makers and the media through education and advocacy."

Mr. Hardy said the goal is to enhance the public perception of gaming and to advance the interests of the industry.

"We are the fastest-growing new industry and we are providing lots of jobs and lots of tax benefits to the commonwealth," Mr. Hardy said, referring to the 55-percent tax rate imposed on slots revenue to provide property tax relief, economic development funds and assistance to the horse-breeding industry.

Lately, efforts have been focused on protecting casino owners' interests as the Legislature considers a gaming expansion that would allow table games such as poker, blackjack and roulette. At issue are the taxes and fees that would be charged to casinos that choose to offer table games.

Mr. Smukler said that, until now, the association's focus had been on litigation rather than legislation.

"There was a lot of litigation that was going on," Mr. Smukler said.

Mr. Hardy contradicted him, saying the association's first two years were spent organizing and securing office space in Downtown Pittsburgh on the 30th floor of One Oxford Centre.

During that time period, the state Supreme Court ruled unconstitutional a ban on campaign contributions from casino operators, heard appeals from losing applicants for casino licenses and ruled in favor of SugarHouse in a dispute over whether developers had a right to build along the Delaware River.

Mr. Zappala, who retired in 2002, was long off the bench by then, but some political watchdogs and gaming opponents including Mr. Kauffman and Ms. Berlin are concerned he may have had residual influence.

In one case before the federal Third Circuit Court of Appeals, the League of Women Voters is alleging that lawmakers and Supreme Court justices traded judicial pay raises in 2005 for a favorable ruling on a legal challenge over the constitutionality of the 2004 state law that legalized gaming.

Three of the seven justices now on the Supreme Court bench also served during Mr. Zappala's tenure.

"People already feel that the decision on the pay-raise deal was tainted by the lawsuit and now you're telling me that [Mr. Zappala and his daughter] are working for the casino industry? The whole idea of being able to trust in our court system is undermined," Ms. Berlin said.

No one from the association is registered with the Pennsylvania Department of State as lobbyists. Mr. Smukler and Mr. Hardy say that's because The Pennsylvania Casino Association doesn't lobby. Individual members have their own lobbyists, they said, but the association has never retained one.

"The association sends e-mails to legislators and we did pay for a radio spot, but that's the extent of what the association has done," Mr. Smukler said.

That sounds like lobbying to Mr. Kauffman of Common Cause.

"By every conceivable definition of lobby law, they're lobbying. They're supporting a specific bill and asking for lawmakers to vote for it," he said. "They're lobbying."

Association officials disagree. The letters to lawmakers represented views of individual casinos, not the association, they said.

An Oct. 1 memo to lawmakers was touted in a press release put out that day by the casino association, but did not come on its letterhead. Instead, it came on a page bearing logos of Rivers Casino of Pittsburgh, Foxwoods Casino Philadelphia, Mount Airy Casino Resort in the Poconos and SugarHouse of Philadelphia.

Foxwoods is not a member of the association. Casinos that are not members sometimes join together on specific issues, Mr. Smukler said.

He declined to say how much each member pays in dues, but tax forms show that membership dues totaled $808,000 in 2007 and $404,000 in 2008.

Mr. Hardy said the amount of dues payments change depending on the association's budget, with each member paying a third.

A string of recent press releases suggests the association's membership changes frequently, but Mr. Smukler says it has always had the same three members -- SugarHouse, The Rivers and Mount Airy.

At times it is unclear, even to the association itself, which casinos it speaks for.

The association recently issued a press release "on behalf of" The Rivers, SugarHouse, Foxwoods and Mount Airy, saying those casinos would sue if smaller casinos were allowed to expand.

Five hours later, it issued a correction saying the association does not speak for Foxwoods. And a week later, Mount Airy's CEO George Toth wrote a letter to lawmakers saying he had no intention of joining legal actions proposed by the casino association.

A spokeswoman for SugarHouse said the casino remains a member of the association.

That isn't surprising because the idea for an association was born through discussions between executives at Mount Airy and SugarHouse, Mr. Smukler said.

Mount Airy owner Lisa DeNaples is a member of the board along with Mr. Hardy and Mr. Hardy's boss, Richard A. Sprague, who is part-owner of SugarHouse and is a powerful Philadelphia lawyer who has represented prominent power brokers including Mr. Fumo.

Those board members were not paid in 2007 or 2008, according to tax filings, which show that the association spent $410,000 on salaries and benefits last year. Other expenses include $46,400 for rent and utilities for the office in Pittsburgh; $13,375 in transportation and $9,000 on telephones.

Jonathan D. Silver contributed to this report. Tracie Mauriello can be reached at tmauriello@post-gazette.com or 717-787-2141. Follow her at www.twitter.com/pgpolitweets .
First Published October 25, 2009 12:00 am

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