State may expand lottery with video poker
There may be no such thing as a sure bet, but a decision Wednesday whether to expand the Oregon Lottery comes awfully close.
Gov. Ted Kulongoski wants to add slot-machine-style games to video lottery terminals in order to generate an additional $120 million in state revenue, and the state Lottery Commission is expected to follow suit.
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The governor wants to use the extra lottery profits to help keep state troopers on the road, causing some to dub his plan "Slots for Cops."
And while the vote Wednesday seems a foregone conclusion, there's no predictions of easy sledding in the aftermath.
The games will be scheduled to launch July 1, but the state will need to engage in a months-long, high-stakes tussle over how much of the additional profits can be kept by restaurant and tavern owners that offer the video terminals.
The restaurant industry saw commissions drop by 10 percent this summer during a once-every-six-years contract renegotiation — and aren't thrilled with the idea that the state is contemplating another reduction.
However, state law requires the lottery to maximize dollars for public benefit. Citing a 2004 audit by the Secretary of State, critics, including State Treasurer Randall Edwards and school lobbyists, say the current setup is overly generous to the restaurant industry.
"We're caught in the middle on this," said newly appointed Lottery Director Dale Penn, a former Marion County District Attorney. "It gets ugly when money is discussed." The lottery generated roughly $546 million in receipts in 2004, with about 70 percent going to the state.
Penn floated a proposal this month to reduce the retailers' profits by 11 percent if they offer the slot-style games in addition to video poker. He believes retailers would still end up pocketing more money because the addition of the new games will bolster lottery popularity.
However, his trial balloon was quickly filled with buckshot and from all sides.
Some say retailers would still earn a tidy profit if the commissions fall to 15 percent from the current 28.8 percent. The restaurant industry strongly disagrees.
Greg Farfaglia, owner of Bend's Southside Pub, said he's seen his share of video poker receipts decline by an average of $2,000 monthly since July, a result of the new contract.
And that's tough to swallow at a time when wages, insurance costs and alcohol prices are going up.
The upshot: If he's required to reduce his commission to offer the line games, he'll just stand pat and stick with video poker, he said. "The voters in this state always have shot down tax increases because there is no confidence that government uses money wisely, so now they're looking for the easiest target to find the money," he said.
The tavern generated more than $400,000 in lottery receipts in the past year. His business commission was about $125,000, he said, and helped him offer health insurance for his staff.
Meanwhile, Farfaglia said his income from the business, where he works more than 60 hours a week, was $62,000. "That's not exorbitant," he said.
The biggest video lottery retailers in Central Oregon are a chain of Ashley's delis, owned by Portland-based Elmer's Restaurants, Inc.
The company in 2003 received a total of $710,523 from two Ashley's locations in Bend and one in Redmond. The Bend locations ranked 23rd and 51st on the list of Oregon's highest-grossing video lottery outlets.
Bill Perry, lobbyist for the Oregon Restaurant Association, said it's too soon to know the full impact of the recent commission cut, and now the state is trying to force another one.
The industry has been clamoring to get line games for years because of the prospect of additional revenue. However, at least for now, most retailers are echoing Farfaglia's sentiments and say they won't offer the new games.
To some, the retailers' refusal appears to be a negotiating tactic, much like threats last year by restaurant owners to stop offering the games if commissions were reduced. Ultimately, the commissions were cut — but nobody pulled the plug. "That's worth noting," said Sen. Ryan Deckert, D-Beaverton, the chairman of the Senate Revenue Committee.
Still, that possibility puts the state in a tough spot. If retailers refuse to offer the line games, it won't be able to collect the extra receipts envisioned to cover state police salaries.
Rep. Tom Butler, R-Ontario, the chairman of the House Revenue Committee, said he intends to conduct hearings on the contracts. School activists are ratcheting up pressure on lawmakers to force a contract that steers more money to the state, he said.
Butler, an accountant, represents Baker, Malheur and Harney counties and has seen the balance sheets of restaurants in his district. "I don't want to prejudge where we might go," he said. "But we really are partners with these folks and you are in danger if you run roughshod over them."
But Deckert said he expects lawmakers will lean on Penn to get the most dollars possible in the deal. "We're looking for him to protect the state's interest," he said.
"We have to think of them as partners, but this is a business negotiation," he said. "Each side is going to drive for the best deal it can get."
Penn said 80 percent of video lottery terminals are either loaded with the line games or can run them if outfitted with new computer chips. The remaining machines are outdated and don't have the capacity. Those terminals were already scheduled for replacement, at a cost of about $58 million, he said. Those costs will be paid for by the state.
Source: Bend Bulletin
