It's time to maximize the use of lottery revenues for the public good

By Dana Hepper of Portland, Oregon. Dana is a former teacher and the Oregon advocacy director at Stand for Children.

Oregon schools have cut $500 million in teachers and services to students, and class sizes are on the rise. Our kids already learn in some of the biggest elementary classes in the nation and have one of the shortest school years. Oregon students will continue to fall further behind their national and international peers if we don’t seize every concrete opportunity to invest in our children’s classrooms.

Right now, we have that opportunity. The Oregon Lottery was established to provide additional funding primarily for public education, but under the current contract nearly 24% of lottery dollars instead go to tavern owners and other lottery retailers. The Lottery’s own studies show that retailers will still profit if compensation rates are reduced to 15%. For every 1% the Lottery Commission reduces retailer rates, Oregon’s schools gain $7 million per year. Oregon schools are missing out on millions of dollars! Right now, the current contract is up for renewal. This opportunity may not present itself again for another 6 years, so we must act now to invest more lottery dollars in Oregon schools.

We understand that bars and other lottery retailers have been hit hard by the smoking ban and the recession. That’s why we are proposing a reasonable, phased-in decrease of retailer rates.

The Lottery Commission should decide what a "reasonable rate of return" is for lottery retailers (studies indicate that a 15% rate would provide a reasonable return after recouping capital costs and estimate retailer costs at about $10,000 per year).

We propose a two-tiered rate structure that provides all retailers with a higher percentage of lottery proceeds until they have recouped their capital costs (for example, 27.5% of the first $50,000 in sales), then a lower percentage of lottery proceeds on additional revenue (e.g., 16% of sales above $50,000). After capital costs have been recouped, the percentage paid to retailers should not exceed 16%. There should be no changes to the rates in the first year of the new contract (when the impacts of the recession and smoking ban are estimated to be the most severe). Starting July 1, 2011, the Lottery Commission should move toward a maximum 16% rate for proceeds above a set level of sales (i.e. by decreasing rates by 2% per year for four years). Read about the proposal at stand.org.

The Lottery Commission has a constitutional mandate to maximize revenue for the public good. Join Stand for Children and other concerned citizens in urging the Commission to uphold their constitutional mandate to maximize revenue for the public good, by incorporating our reasonable proposal to phase in a higher investment of lottery dollars for Oregon schools and services.

Take action now!

Comments

  • (Show?)

    If reducing the percentages paid to lottery retailer, or any other method, would increase state revenues from the lotteries, we should do it.

    However, I'm not a proponent of dedicated revenues. I'd prefer the revenues go to the general fund to be allocated by the governor and legislature.

    I'm not, without mentioning the specifics, in full agreement with our current educational priorities, so just handing over more money to the current educational system is not my top priority.

  • Fishfan (unverified)
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    "The Oregon Lottery was established to provide additional funding primarily for public education,"

    Isn't that statement a lie? I thought the lottery was started to support small business and economic development, not education...

  • (Show?)

    what problems associated with the smoking ban? As far as I know, most businesses are doing as well or better since, controlling for the recession.

    And I'm not sure the numbers are persuasive. If a percentage point yields $7mil for schools, let's go all the way and pull in $63mil from a 9% reduction down to the barest profitable margin for retailers.

    $63mil represents about a 1% increase in K-12 funding. (I assume we're talking K-12 here; obviously it's even less if you factor in higher ed). I'm not sure the return is worth cutting the retail share to the bone, when it was already cut recently. Frankly, that 1% would get lost in the shuffle, and on a per-district basis we'd be talking about very small dollar increases.

    Good idea in theory, but does it pencil out? Mmmmm...not sure.

  • Greg D. (unverified)
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    Lottery income should go into the general fund.

    Also, presumably there is a point - and I don't know what it is - where the retail fee becomes so low that there would no longer be an adequate incentive for retailers to host the Oregon Lottery machines on their premises. I don't see the harm in the Lottery periodically lowering fees paid to retailers in order to test the lower limits of retailer survival / acceptance, but Lottery needs to be flexible enough to quickly raise fees if necessary to sustain net income.

  • joel dan walls (unverified)
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    I don't know about other folks, but I am shocked and appalled that the State of Oregon does not have better, more "progressive" methods than the lottery for separating poor and desperate Oregonians from their money.

  • rw (unverified)
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    Anybody have substantive facts on who gambles via lottery in Oregon?

  • Bill Bodden (unverified)
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    "I don't know about other folks, but I am shocked and appalled that the State of Oregon does not have better, more "progressive" methods than the lottery for separating poor and desperate Oregonians from their money."

    Joel: At least we can agree on this one. Using a lottery to take advantage of the poor and poorly educated for funding valid government projects is evidence of a society that lacks the character to pay taxes for legitimate purposes. Ironically, the no-tax brigade seem not to have a problem with taxes going for governments' most wasteful projects with the bloated military being a prime example.

  • Dave (unverified)
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    Torridjoe and joel dan walls both have valid ponts.

    In the first instance, the amount of money raised by implementing this measure - even assuming it is implemented to the full extent - would be negligible. And the percentage of money raised (as torridjoe pointed out, about 1% at the most) would most certainly be disproportionate to the percentage of money lost (9%) to the retail level. Aside from issues of fairness to these retailers, I'm not convinced that the 1% that goes to education or the general fund, will provide the same degree of return as that money staying with the retailer...who will use that money to hire people, expand their businesses, and otherwise circulate it back into the "real" economy.

    Second, Oregon is already addicted enough to gambling revenue, which is perhaps one of THE most regressive revenue generating schemes a government can employ. To the extent government wishes to increase its take of gambling revenue, Oregon's collective moral compass becomes more and more disoriented. If anything, the state should be examining ways to become LESS dependent on gambling revenue, not more. From both a moral and economic point of view (Oregonians are spending less on the lottery anyway), this proposal is not the answer.

  • Bartender (unverified)
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    "As far as I know, most businesses are doing as well or better since, controlling for the recession."

    Are there stats to back this up TJ? Not saying it isn't so (I don't know for sure) but my experience doesn't support this.

  • Greg D. (unverified)
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    This probably sounds stupid, but Oregon could increase gambling income significantly by instructing Oregon Lottery to figure out a way to allow retailers to locate at least some of their terminals outside in the "smoking porch area" that most bars have erected. There would be security issues (and weatherization issues) but the gross receipts would increase. For reasons that are unclear to me since I am neither a gambler or a smoker, gamblers love to gamble while they smoke, and smokers love to smoke while they gamble. For someone who smokes 2 cigarettes an hour, and assuming each cigarette takes 3 minutes to smoke, that's 6 minutes per hour away from the video terminal, or 10% less playing time. Less playing time = lower gross = lower net.

    I agree that gambling and particularly video terminals are a tax on the poor and math-challenged, but as long as Oregon is going to have the system, it may as well be operated to bring in as much money as possible for legitimate government purposes.

  • Jason (unverified)
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    "In 1984, the Oregon Lottery was created by a two-thirds majority vote of the people of Oregon. At that time, Lottery dollars were approved to help strengthen Oregon's economy and to create jobs."

    Source: http://www.oregon.gov/LOTTERY/about_us.shtml

    The Oregon Lottery was not developed for schools, but for economic development and job creation. Today, about 17% of lotter funds are used for those purposes.

  • (Show?)

    "Are there stats to back this up TJ? Not saying it isn't so (I don't know for sure) but my experience doesn't support this."

    An interesting question. I don't know of a specific, comprehensive report--but I do see anecdotal evidence that it's true. There's this report from earlier in the year by the Trib, for example, that claims some owners report an INCREASE in business, while those seeing declines are not sure whether it's no smoking or the recession at fault. This piece from KPTV a couple months latermakes a more direct case that the ban has had no negative overall effect on sales, and may have even improved business. And of course, in my frequent visits to bars and restaurants around the area, I don't see much of a dropoff in how crowded they are.

    As I said, all anecdotal. But the lack of many anecdotes about it having hurt business, would seem to be somewhat telling--particularly when that's the easier and more controversial story for media to write.

  • Jason (unverified)
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    To follow up on my earlier comment about why lottery dollars were created...

    Education and job creation go hand-in-hand. You can't have one without the other. However, I'm of the opinion that the state of Oregon is over-using lottery dollars for schools because our tax structure is pathetic. We have no consistent stream of dollars for eduction, let alone other services, and now lottery dollars that were supposed to help create family-wage jobs are no longer being used for that purpose at sustainable levels.

    If you don't have well-functioning k-12 systems, higher education access, and workforce training opportunities, it not only makes it difficult to recruit new businesses, but your ability to keep existing companies is also hindered. On the other hand, if communities are unable to create opportunities for family-wage jobs, then you're only educating students to migrate out of your community to look for work.

    Economic development funding is one of those budget items that continually gets slashed in tight budget cycles. It's rarely a priority to a majority of Oregon lawmakers. Lottery dollars were supposed to help provide a steady stream of revenue to position Oregon to be competitive in creating jobs, and diversifying our economy.

    Of course, that's no longer a priority in this state.

  • matthew (unverified)
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    you know what is amazing none of these liberal pro education blogs ever tell the real truth about school funding.their are two budgets in education.the general funds and the all funds which is always millions of dollars higher than the general funds.schools have been bald face lying to parents and the public for years about how much money they really get.oregon spends more perp pupil than any other state in the west.we have spent 10,000 bucks per pupil for the last 15 to 20 years.thats adequate and very stable funding.enough of this liberal nonsense about how poorly funded our schools are.the public is only yold the general funds budget not the all funds which is millions higher.oregon dont have a school funding problem only a school spending problem.schools at the same time they boo hoo about lack of funding continue to waste millions of dollars on outside consultants,pers.contracts and other garbage they dont need.we dont need more taxes or a sales tax for schools.better efficiency in school spending is nedded.its time schools quit whining and learn to live with what they get now and realize the public is tapped out and look at our unemployment rate.baloney we dont have a consistent stream of money for education jason.10,000 bucks a kid is more than enough and generous funding to give kids a good quality education.its time schools start valuing the kids instead of consultants and the other garbage.

  • Bill R. (unverified)
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    @ mathew

    Hey, Mathew, obviously you "didn't need no stinkin' education." If you want to post on these liberal blogs about education, you might try learning to write, spell, punctuate.. all that other book learnin' stuff. You're the best argument ever for why education might be underfunded.

  • Bill R. (unverified)
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    On the other hand maybe "mathew" is a straw man creation by someone having a little fun with us here.

  • Bill Bodden (unverified)
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    Matthew: If schools are so well-funded why do so many teachers and their families and friends find a need to tap their wallets to donate supplies to the classes?

  • Bartender (unverified)
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    I followed your links TJ, and the Trib article cites one bar (the Rialto) that says business is up since the smoking ban. Your other link goes to a Facebook page, not what you cite, so I'm not sure what you're referring to there.

    My experience (and that of my many compadres in the business) does not support your anecdotal claim. My tips -and our business receipts- show a 50-70% decline since the first of the year when the smoking ban went into effect. The economy no doubt plays a part in that, but the dramatic dip in sales happened immediately after January 1, not gradually as you would expect if it were due solely to the economy. Lottery receipts are also down since Jan. 1, so I have to dispute your claim.

    I also take issue with the common meme here that the lottery preys on only the poor and poorly educated. C'mon folks! People of all classes and backgrounds gamble. I know. I see it every day. In my experience, only those with some money are gambling these days.

  • Bartender (unverified)
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    Oh yeah. I'm still waiting for all you guys (and the hoardes of other non-smokers) to show up where I work now that it's smoke free - as many of you said would happen back when we first debated this 9-1/2 months ago.

    Just kidding. ; )

  • (Show?)

    I think we should just pay rent to the tavern owners for the real estate that we're taking up, plus a reasonable stipend for sweeping up around the machines, plus a reasonable fee for handling the cash transactions the machines generate.

    Probably somewhere around $5000 per year, per machine. Seems perfectly reasonable to me. Whatever the number, it oughta be a flat rate.

    I certainly don't understand why we'd pay 'em a percentage of the take -- since the winnings are most likely influenced by things like advertising and how the machines are tuned; i.e. how much of the average wager is returned in winnings.

    (For those paying attention: you won't find a game in Las Vegas that pays out less than 90% of dollars wagered - and most are around 95-96% or so. That high return is defined in the law. Meanwhile, Oregon video poker is around 58% payout. Our machines wouldn't just be illegal in Nevada. They'd be laughed out of the state.)

  • Bartender (unverified)
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    Interesting concept Kari. But I wonder if you'd come out ahead. To my knowlege, a single establishment (or each separate area of one) can have up to 5 video poker machines. Most places have the maximum. That's $25 grand per. I don't know what the average place gets per year in lottery commissions (where does one find this info?) but 25 g's sounds kinda high. Maybe I'm wrong. Be interesting to explore tho.

    For my part, I'm the one who has to clean and do basic service on the machines, call the lottery when I can't fix em, do the reports necessary and deal with all the extra running and money (and a whole 'nother till) that having the lottery requires, for the same minimum wage I'd get at a place that doesn't have it. The only benefit to me is the tips I might get. It's a bit irksome that my boss gets the fruits of my labor that way, but what else is new? If it helps keeps the doors open, it's OK by me.

    Before experimenting with what we think might be the acceptable "price point" for lottery retailers, can we at least do some research and get some solid stats to make a more informed policy decision? People's livlihoods are at stake.

  • Richard (unverified)
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    Let me take a wild guess that none of you blues find any problem with the legislature's diverting of $250 Million in lottery dollars for the Milwaukie Light rail and new Willamette river bridge?

    Of course not.

  • Greg D. (unverified)
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    Many lottery locations generate annual owner receipts well above 5K per machine and some are above 15K per machine. I don't think the numbers are published anywhere because bar owners (and perhaps Lottery as well) are sensitive about competition issues. If everyone knew that "Kari's Pub" in St. Johns was the highest grossing lottery retailer, every Tom, Dick and Harry would be opening up competing bars across the street or around the block from "Kari's". But the word gets out in the bar owner community anyway. Just look what is happening in Jantzen Beach where (it is rumored) one or two operators were top producers in the State, and now they are remodeling buildings to erect more bars and "restaurants" as fast as the nail guns can shoot.

    I think percentage rent (as opposed to fixed rent) is the way to go as it protects the Lottery's interest and motivates retailers. However, as suggested in my earlier post, I don't see why Oregon Lottery cannot adjust retailer payments based upon free market considerations by testing reduced retailer fees against the impact on gross receipts. If they lose too many retailers, they can always raise the fee back to a level which will support a sufficient number of locations. Doing so will require the legislature and Oregon Lottery to face down the Oregon Restaurant Association and their very effective lobbying group, but that is a topic for another day.

  • Bartender (unverified)
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    Greg D. -

    Fair enough... Some retailers make more than $5 grand per machine. And in thnking more about the flat fee that Kari proposed, I have to agree with you that a percentage would keep retailers motivated, as you say. Those machines work pretty well, but they do require service from time to time. It benefits the retailer to keep them functioning properly in the current system. With a flat fee, there'd be less motivation to do so.

    I'm still not thrilled with your idea to test the waters by simply experimenting with the commission rate, though. If the lottery loses too many retailers, that is potentially a lot of people's jobs. You're pretty glib about that. I'm all for maximizing lottery $ for the public good, but there must be a better way to do it than just playing around with the commission rate to see what flies.

  • Greg D. (unverified)
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    Bartender -

    I don't overlook or minimize consequences of people losing jobs, especially in this envirnoment. Lottery commissions have supported many Portland area establishments which would either never have opened or which would have closed long ago. I guess the public policy question is who comes first, Lottery retailers and their employees or Govt. programs which need dollars to survive. I tend to come down on the side of Govt. programs, but I can see both sides.

  • (Show?)

    Bartender, they are only "my" claims insofar as I linked media reports to that effect. Go to KPTV and search cigarette ban for the other story if you don't have Facebook.

    I also base the contention on the experience around the country, where it would seem the impact on business is typically minimal. The exception would be gambling revenue, but overall the effect has been neutral AFAIK.

  • Kurt Chapman (unverified)
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    Beware the law of unintended consequences. Banning smoking from bars and taverns has led to a decline in on-line gaming. The Lottery revenues are down by a measurable amount. Take the profit incentive away from the retailers and some will chose to have the machines taken out altogether.

    I'm not saying reducing the retailer's take is a good or bad thing. Just be aware that some will quit altogether and overall revenue may suffer.

  • Buckman Res (unverified)
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    I think we should just pay rent to the tavern owners for the real estate that we're taking up, plus a reasonable stipend for sweeping up around the machines, plus a reasonable fee for handling the cash transactions the machines generate.

    Better yet let’s just cut out the middle man altogether and build a series of state-owned lottery establishments around the state. That’s really where this argument is logically headed, the state building and running casinos and other gambling venues to generate as much revenue as possible from generous citizens who voluntarily choose to donate their cash to keep the system going. More power to them.

  • conspiracyzach (unverified)
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    How about a complete list of all those special lotto projects that got money from day one ? PORK,PORK,PORK...with a side order of PORK.

  • matthew (unverified)
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    <h2>hey bill rodden please explain if oregon schools are so badly funded and broke like you claim then explain to us why oregon schools can always afford millions of dollars worth of consultants then?tell us why schools actually need consultants and why they should not be cut instead of programs for the kids.its schools fault for having teachers and etc have to pay for supplies.i have an idea bill how about taking the millions schools annually waste on worthless 100,000 dollar and outside consultants that never save them any money and use that to buy supplies?how about better spending efficiency in education?ever heard of that bill?10,000 bucks a kid is more than adequate and stable funding</h2>
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