My, how time evaporates! Just fourteen years ago, Jan. 24, 1983, the first Colorado lottery tickets went on sale and there hasn't been a year since without bitter debate, some successes and some failures for additional lottery legislation.
And who can forget the lottery's inauguration in downtown Denver, with the lottery nobles tossing free lottery tickets from a balcony down to the frenzied mob of peasants gathered below.
This year the major issue may be a proposed constitutional amendment, HCR 1001, by Rep. Norma Anderson (R) and Sen. Joan Johnson (D) seeking to earmark $32 million annually from lottery funds for maintenance and construction of elementary and secondary public school buildings to relieve overcrowding. Their proposal would, in effect, slide school construction into the payouts presently made for prison construction, beginning with the third quarter of fiscal 1998-99.
Colorado operates on a fiscal year, July 1st to June 30th, and the state auditor's report for the fiscal year ending June 30th, 1996 showed a $20.5 million decrease in gross lottery sales from fiscal 1994-95. Payments to "prisons and parks", shorthand for where the payments go after deducting prizes and overhead, suffered a $9.4 million decline from $100.6 million in fiscal 1995 to $91.2 million in fiscal 1996.
Biggest losers were Capital Construction/Great Outdoors Colorado down $7.7 million. Conservation Trust Fund and Parks only dropped $1.5 million. What did NOT decline drastically was overhead, $52 million in fiscal 1995 and $50 million in fiscal 1996.
And in overhead lies a potential source of the $32 million that Rep. Anderson and Sen. Johnson are seeking. There were three major components of lottery overhead in fiscal 1996: Retail commissions and bonuses, $21 million; ticket costs and vendor fees, $10.2 million; and advertising and public relations, $9 million. (Wages and benefits are only a small portion of lottery overhead, $6 million in 1996 and $5.7 million in 1995.)
Of the three, advertising and public relations is the softest underbelly. Since 1990, this portion has never been below $8 million in Colorado regardless of what gross sales were any year. In 1988-89, and 1989-90, we led the nation's lotteries in this budget number in proportion to gross sales. Advertising and public relations (which includes "marketing, communications, research and sales, and promotion) is 2.7 percent of gross fiscal sales in 1996 and 2.5 percent in 1995. The NATIONAL average for lotteries was $372 million in advertising and public relations for $31.9 billion gross sales in 1995, or slightly less than 1.2 percent. Colorado is not just twice the national average. Colorado is 2.2 times the national average.
When Colorado began selling lottery tickets, it made sense to spend large sums to entice Coloradans to buy the tickets. But the lottery is now an "institution", an old-line lottery that's been around for 14 years. If Colorado's advertising/public relations budget had equaled the 1995 national average (1.2 percent of 1996's $331 million) there would have been $5 million more in funds available for "parks and prisons". A recent New York Times article stated "The Massachusetts state legislature has taken a drastic step, slashing the lottery's advertising budget from $12 million a few years ago to $400,000 this year," apparently with no ill effect.
Before the lottery began in 1983, there were major disputes with Colorado retailers over how much money they would be getting. After all, it was going to cost them to handle ticket sales. In December, 1982 the three major chains, King Soopers, Safeway and Albertson's threatened not to sell lottery tickets unless they received eight percent plus "other incentives" instead of 6 percent. Albertson's broke ranks first to sign up, and the other two then capitulated.
But in today's competitive food and gasoline sales market, lottery ticket availability is a way to entice customers inside. It makes little sense for Colorado government to pay out 6.4 cents in commissions and bonuses for every $1 lottery ticket sold in fiscal 1996. A five cent per dollar allotment to retail commissions and bonuses would have netted "parks and prisons" another $4.5 million in fiscal 1996. T
he recent felony conviction in New Jersey of J. David Smith, the former national sales manager of G Tech Holding Corp. for kickbacks on consulting fees led to the discovery by the U.S. Attorney's office that G Tech pays $20 million yearly to consultants for "access to public officials". They promised further investigation. G Tech has the Colorado lottery contract. In fiscal 1996, the Colorado lottery paid $10.2 million for ticket and vendor fees. Is part of the $20 million paid out by G Tech then recovered by G Tech through the cost Colorado pays for tickets under the lottery contract? Should Colorado's contract cost the lottery a half-million dollars less per year?
By fiscal 1998-99, it is safe to assume lottery profits would again be at least $100 million. (A Jan. 12th Rocky Mountain News article states it will happen in 1997.) If you add lottery overhead savings the total would be $110 million. If HCR 1001 gave school construction $10 million off the top and allowed Conservation Trust Fund and Parks to take half the remainder, there would be $50 million in the remaining pot.
The problem with Great Outdoors Colorado (GOCO) is that it gets the "equivalent" of $35 million adjusted for any consumer price index increase (CPI) from 1992 figures, with any remainder going into the general fund. The most recent CPI calculation shows 164.8 for 1998--compared to 130.3 for 1992. If accurate, the $35 million becomes $47 million in 1998. But if HCR 1001 amended the CPI "increase section" and used 1998 figures rather than 1992 figures as the base, GOCO would get $35 million, leaving $15 million for general revenues OR for allocation to school construction.
The Colorado lottery is scheduled for repeal July 1, 1999, with a state auditor's analysis and evaluation compiled by Jan. 1, 1998 and submitted to the legislature "no later than" Jan. 15, 1999. But the preliminary report of the State Auditor released in September, 1996 "suggests" the statutory 1998 Sunset review be "expedited" to benefit long-term funding of purchases by GOCO. And the GOCO spinmasters are hard at work, gaining the front page headline in the Jan. 12 Rocky Mountain News. The story relates how GOCO money heavily benefits the Denver metropolitan area, casually mentioning that the Anderson bill would stifle future projects.
As House majority leader, Rep. Anderson could play a key role in whether a bill to continue the state lottery would move through the legislature in 1997 or 1998, rather than 1999. GOCO wants an early resolution. To get it, are they be willing to stifle what would be powerful opposition to the Anderson/Johnson constitutional amendment? A $25 million yearly expenditure from lottery funds to repair and construct school buildings might be doable.
The suggested approach should leave Conservation Trust Fund and Parks in a reasonable position, and GOCO would certainly be in a better position than under the present version of HCR 1001. If future lottery fiscal years after 1999 posted modest profit increases, the $25 million yearly expenditures for schools would not decline.
Jerry Kopel writes a column for the Statesman based on 22 years past experience as a state legislator.
Copyright 2015 Jerry Kopel & David Kopel