State Senator Mary Lazich (R-New Berlin) represents parts of four counties: Milwaukee, Waukesha, Racine, and Walworth. Her Senate District 28 includes New Berlin, Franklin, Greendale, Hales Corners, Muskego, Waterford, Big Bend, the town of Vernon and parts of Greenfield, East Troy, and Mukwonago. Senator Lazich has been in the Legislature for more than a decade. She considers herself a tireless crusader for lower taxes, reduced spending and smaller government.
The nonpartisan Tax Foundation in Washington D.C. has just released the results of its 2009 nationwide survey on attitudes of American taxpayers. The survey was conducted between February 18 and 27, 2009 among 2,002 adults (aged 18 or older).
For the first time, this question was posed to taxpayers:
“Currently, most state governments raise revenue through government-run gambling operations, such as lotteries, keno games and video lottery terminals (which offer casino- type games such as poker, blackjack and slots), for the purpose of general government spending. In general, do you favor or oppose such government-run gambling operations?”
Here are the results:
27 percent: somewhat supportive
26 percent: strongly supportive
12 percent: strongly oppose
10 percent: somewhat opposed
I am not surprised that over half of the respondents approve of state-run lotteries. The Tax Foundation reports, “State-run lotteries are the most popular form of commercial gambling in the U.S., with half or more Americans participating in any given year. In 2008, total consumer spending on lotteries was over $60 billion – or $199 per capita– and in 2004 the average American spent more money on lotteries than on reading materials and movie theater tickets combined.”
During June 2008, I blogged that most states, including Wisconsin, are hooked on gambling.
However, I have to wonder what the results of the Tax Foundation survey might have been if there had been a follow-up to their single, very general question about lotteries. For example, what if the Tax Foundation had added a second question like this:
“Would you favor or oppose government-run gambling operations if the social costs associated with this type of gambling exceeded government-run gambling -related tax relief?”
There are tremendous costs to the families of troubled gamblers. There are financial loses. Serious problem gamblers lose or quit their jobs, steal money to support their gambling habit, think about and actually plan suicide, and some even make suicide attempts. Children of problem gamblers develop behavior and adjustment problems suffering from depression, anxiety, and cynicism.
A Wisconsin Policy Research Institute study in 1996 reported the average serious problem gambler imposed costs close to $10,000 upon Wisconsin each year with a total annual social cost impact of over $307 million. That was during 1996. The number of problem gamblers has increased since, so the societal cost has also increased.
A July 2008 audit of the Wisconsin lottery by the Legislative Audit Bureau found that property tax relief totaled $697.9 million over the past five fiscal years, including $160.0 million in 2006-07.
Social cost of gambling: over $307 million/yr
Property tax relief for the latest year available: $160 million
The social costs far outweigh the gain in property tax relief. However, the state gambling genie is out of the bottle and will probably never return.
Wisconsin’s dispute with the Ho-Chunk Nation might be over after a four year battle, and Wisconsin taxpayers got the short end of the stick in the gambling compact settlement.
The Ho-Chunk stopped making payments to the state in 2004 after signing a compact with Governor Doyle in 2003. The tribe argued that because a 2004 state Supreme Court ruling invalidated a similar compact agreement with the Forest County Potawatomi, it owed the state nothing.
Since 2004, Ho-Chunk halted payments with the exception of a one-time $30-million payment during 2006 it claimed demonstrated good faith bargaining. Here are the details of the recent settlement that should have taxpayers quizzically shaking their heads wondering, is that all there is?
The state contended the Ho-Chunk owed $72 million. Ho-Chunk has agreed to pay $60 million. That is a $12 million jolt to Wisconsin taxpayers.
Terms of the old compact had the Ho-Chunk paying the state a six percent tax of its take. Under the new compact, the Ho-Chunk will make payments of five percent if net earnings are below $350 million and 5.5 percent if earnings exceed $350 million. The reduced percentage means a loss of millions of dollars to the state. By contrast, the Potawatomi pay 6.5 percent of winnings.
The new compact also allows the Ho-Chunk to make reductions in their annual payments to the state:
- Beginning May 1, 2010, the tribe can deduct payments made to counties totaling $1,000 for every acre of land owned by the U.S. government in trust for the tribe located within each county’s jurisdiction in July, 2003. The LFB informs me that during July 2003 the Ho-Chunk had approximately 2,300 acres of trust land that could result in a reduction in their annual state payment of $2.3 million.
- During a 10-year period from May 1, 2009 to May 1, 2019, the tribe could deduct the amounts it paid for public works projects that benefit both the tribe and the state. Deductions would be limited to no more than $1.0 million in any one year and the total deductions for the period could not exceed $5.0 million. That means there could be an average annual deduction of $500,000.
- The tribe can also deduct any additional amounts paid by the tribe for projects that the state and the tribe agree provide a substantial public benefit in areas of economic development, infrastructure, health, safety, or welfare. These deductions would begin May 1, 2019, would be limited to a total of $4 million, with annual deductions limited to a maximum of $1 million.
Two years ago, I wrote a column predicting “an outrageous explosion of gambling, the likes of which Wisconsin has never seen. Tourism brochures can start describing the Badger State as the Las Vegas of the Midwest.”
I specifically pointed to the Potawatomi Bingo Casino in Milwaukee and how its massive expansion flies in the face of voters and the Wisconsin Constitution.
Just how big was the growth at Potawatomi? Here is the most recent ranking of the top 10 largest Indian casinos.
I call them enticements.
Powerball is announcing big changes in its jackpot lottery game. Like a trailer for the next Hollywood box office smash, a lottery press release pulls out all the persuasive stops to lure more players. Powerball promises to “increase the size of the average jackpot,” and make the game “even more exciting,” because Powerball wants to “create lots of millionaires” and wants to “create more winners with better overall odds.”
Here is an example of the spin Powerball is using to attract even more gamblers. Ernie Passailaigue, the Powerball Group Chairman and the Executive Director of the South Carolina Lottery says, “The price of a Powerball ticket remains unchanged at $1. Even though our players know that the cost of everything else has gone up since Powerball sales commenced over 16 years ago, we didn’t want to raise Powerball’s price in our current economy.”
Isn’t that considerate of Powerball? The people who run the jackpot lottery are so thoughtful, they are going a step further by letting you make the decision to spend even more on your tickets because there will be the option to play for bigger prizes for $2 by using Power Play. “We wanted to give our players the power to choose and with many of our newer member lotteries, more than half of our players have chosen the benefits of the $2 Power Play option,” said Passailaigue.
Changes to the game effective January 2009 include increasing the starting jackpot from $15 million to $20 million, and increasing the average jackpot from an expected average of $95.5 million to $141 million. Powerball promises bigger jackpots that will increase faster. The regular second-highest prize will be $1 million, but players will have to buy the Power Play option for an extra $1 and hit all the numbers except for the Powerball.
Powerball is instituting changes because Florida will become the 33rd state to join Powerball in January.
Currently, the odds of winning Powerball are 1 in 146.1 million. After Florida joins Powerball, the odds increase to 1 in 195.2 million. The long odds are the only sure thing about Powerball. Your chances of winning Powerball are slim to begin with and will become even more difficult.
Jackpots will be bigger and there probably will be more millionaires as a result of the Powerball changes. But there will be a great deal more losers as Florida joins Powerball come January.
Every year, the highly regarded Legislative Audit Bureau (LAB) is required by state law to conduct an audit of the Wisconsin Lottery. The financial review is complete and here are the audit’s key findings.
More than 99 percent of the lottery revenue comes from instant and online ticket sales. Total ticket sales increased 13.3 percent during the past five fiscal years, from $435.0 million in 2002-03 to $492.8 million in 2006-07. Sales of scratch-off and pull-tab games increased 13.9 percent during that period, while online game sales increased 12.5 percent. Ticket sales decreased during 2004-05 and 2006-07 due to the timing of large Powerball jackpots that have a sizeable effect on online game ticket sales.
Expenses from game development and production decreased by 14.1 percent over the past five fiscal years. The decreases were the result of the state entering into a seven-year contract with GTECH Corporation in June 2004 to maintain the instant and online gaming system and provide telecommunication services. Other expenses decreased by 16.7 percent over the past five fiscal years. Lottery staff attributes those decreases to strategies implemented to reduce costs.
Under the state Constitution, net proceeds from the Wisconsin Lottery must be used solely for property tax relief to owners of primary residences in Wisconsin and through the farmland tax relief credit to certain farmland owners in Wisconsin. Property tax relief totaled $697.9 million over the past five fiscal years, including $160.0 million in 2006-07.
State laws and legislative action impose limitations on four types of lottery expenses. The LAB reports the Wisconsin Lottery is in compliance with each of the limitations:
1) The LAB reports, “At least 50 percent of Wisconsin Lottery sales be returned to players as prize payments. As a percentage of ticket sales, prize expenses have remained generally consistent, although they increased to 59.3 percent during 2006-07. Wisconsin Lottery officials attribute the 1.3 percentage point increase between 2004-05 and 2006-07 to offering higher-priced instant games that include higher prize payout percentages. They also note that the 2006-07 prize payout percentage may be higher because the Wisconsin Lottery paid the $100,000 prize for Supercash! eight times more in 2006-07 than in 2005-06.”
2) The LAB reports that state law “limits certain administrative expenses to no more than 10.0 percent of gross operating revenues. These administrative expenses include all expenses except prize payments and retailer compensation. The Wisconsin Lottery’s administrative expenses have remained within the statutory limit and were 5.9 percent of gross operating revenues during 2006-07.”
3) The LAB reports, “The Wisconsin Constitution prohibits the expenditure of public funds or of revenues derived from lottery operations for promotional advertising. It directs any advertising to provide information about the chances of winning and prize structures. Through legislative action, the Wisconsin Lottery’s product informational advertising expenses have been limited to $4.6 million annually since 1990-91. This expenditure authority was not exceeded in 2006-07. The Legislature has increased the Wisconsin Lottery’s annual product informational advertising budget to $7.5 million beginning with 2007-08. Wisconsin Lottery staff project that increase will produce an additional $15.0 million in annual lottery ticket sales.”
4) The LAB reports state laws “establish maximum compensation rates for basic commissions and performance program payments to retailers who sell lottery tickets. Basic commission rates are 5.5 percent of the retail price for online tickets and 6.25 percent for instant tickets. Performance program payments to eligible retailers may not exceed 1.0 percent of total ticket sales. The Wisconsin Lottery’s retailer performance program payments have remained within the statutory limit for the past five fiscal years and were 0.9 percent of ticket sales during 2006-07.”
The LAB gave the opinion in their audit that the Lottery’s “financial statements present fairly, in all material respects, the financial position of the Wisconsin Lottery.”
Here is the LAB full report of the Wisconsin Lottery audit.
Once again, I commend the LAB for their outstanding and thorough analysis.
It shouldn’t come as a surprise that the Ho-Chunk Nation missed its June30, 2008 deadline to make a payment to the state of Wisconsin for gambling operations. Since 2004, according to the Milwaukee Journal/Sentinel, the tribe has made only one payment, $30 million in 2006. The Ho-Chunk Nation now owes the state close to $100 million at a time when the state’s fiscal matters are fragile at best.
Why is the Ho-Chunk Nation refusing to make its payments? The tribe alleges that under a 2004 ruling by the state Supreme Court, Governor Doyle exceeded his authority by negotiating new Indian gaming compacts that expanded gambling into perpetuity. The Ho-Chunk Nation contends the value of its 2003 compact was reduced by the court’s 2004 ruling and has refused to make payments until a new agreement can be reached.
Some history is in order.
On May 13, 2004, the state Supreme Court, in a 4-3 decision in Panzer v. Doyle, ruled that Governor Doyle exceeded his authority by agreeing to certain provisions in the 2003 amendments to the gaming compact between the state and the Forest County Potawatomi (FCP) Tribe by agreeing to expanded games, lengthening the compact to perpetuity, and waiving the state’s sovereign immunity.
After the 2004 ruling, Diane Sykes left the state Supreme Court to become a federal judge and was replaced by Governor Doyle’s appointee, Louis Butler. The change in the make-up of the court proved to be significant.
On July 14, 2006, the state Supreme Court ruled that a 1993 amendment to the state constitution approved by voters in a statewide referendum that stated Wisconsin has enough gambling and should not expand does not apply to Indian casinos. The court also affirmed the governor’s authority to renegotiate Indian gaming compacts, paving the way for a huge expansion of gaming at the Potawatomi facility in Milwaukee.
Meanwhile, the Ho-Chunk Nation continues to fight its case in court and is lagging on payments. The inaction is affecting the state budget. As I’ve written in the past, budgets have been drafted and approved assuming the Ho-Chunk Nation will make good on its payments, but that hasn’t happened. Taxpayers have made up the difference, and the Milwaukee Journal/Sentinel reports the state has spent close to $1.4 million in legal bills to settle its dispute with the Ho-Chunk Nation.
It is concerning and very unfortunate that the issue of gambling has created a scenario that adversely affects taxpayers. Budgets adopted crossing our fingers and hoping the Ho-Chunk will come through with their payments is not sound budgeting.