The push to reduce video poker commissions appears to have divided the group that could benefit most from cutting retailers' profits -- school advocates.
State schools Superintendent Susan Castillo and other public education leaders support slimming down the retailers' take so schools can get more of the money.
But groups representing school boards and administrators say they worry that cutting the commissions could cause retailers' business to shrink and lead to a loss in lottery revenue. Schools receive about two-thirds of lottery profits.
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The Oregon State Lottery Commission, under legislative pressure to generate extra money for the state budget, must decide by April whether to reduce retailers' compensation rates. The rates, which average 32 percent of net proceeds, are at issue because the current contract expires in June.
"The fact that people aren't on the same page, it suggests to me this is a difficult decision for me as a lottery director to make a recommendation and for the commission," said Brenda Rocklin, the lottery director.
Rocklin says the rates, relatively unchanged since state-sanctioned video poker was authorized 14 years ago, will go down but doesn't know by how much.
Retailers, led by the Oregon Restaurant Association, argue that lower rates would force them to lay off employees, reduce improvements and cut back the lottery's most lucrative business hours, leading to lower revenue.
Lobbyists for the Oregon School Boards Association and the Confederation of Oregon School Administrators wrote a joint letter to Rocklin this month, warning her staff to make sure a cut would not reduce revenue. The letter, the lobbyists said, does not mean they oppose a cut in the compensation.
"This has become a political issue, and I believe those who are looking for short-term gain aren't necessarily considering the long-term benefit," said John Marshall, the school boards' lobbyist.
"I haven't heard anything from the people who want to reduce lottery commissions that they are right," said Chuck Bennett, a school administrators' lobbyist.
Castillo, the schools superintendent, agrees commissioners must act carefully. But she said, "My message is a different one: I want them to make the change . . . and free up more dollars for schools."
What makes the job tough, Rocklin said, is the lack of conclusive data pointing to a "magic" compensation rate that will maximize state profits and keep retailers interested in the games.
One retailer estimates a rate cut could cost the state $55 million a year in lost revenue.
Bill Service, CEO of Jasper's Food Management and Oregon Food Management, told commissioners at a hearing last week that his groups' nine stores generate 23 percent of their lottery sales during early morning and late night hours. He said those are hours that the stores, which made $1.3 million for the lottery last year, would not be open only for food sales.
A rate cut would force them to trim the extended hours, and other retailers probably would do the same, he said.
"This is not a business you want your retailers to stay open until the food sales stop. You want them to stay open an extra hour or two hours," Service said. "This is the gambling business."
Quebec offers an example
Service said lottery sales growth dropped in Quebec after compensation rates were cut from 30 percent to 26 percent in 2001. Revenue, which had increased 13.4 percent in 2001, grew by only 1.4 percent in 2002, he said.
But Jean-Pierre Roy, spokesman for Loto-Quebec, disagreed that lower compensation led to slower growth. In fact, the agency in November dropped the rate further, to 22 percent, he said. "There's a limit to what the market will hold," Roy said.
Oregon's video poker sales, which increased by 34 percent in 1995, grew by 7 percent the next year after rates for the highest-earning retailers were reduced. Lottery staff attribute the slowdown to the opening of several tribal casinos in 1995, adding that the number of retailers and machines continued to grow. There was a 1 percent dip in sales in 1999, when top-end retailers' rates were cut again, but lottery officials attributed it to other changes in the games, Rocklin said.
In 2001-03, the lottery gave $511 million to the state school fund and other state education programs. The rest of lottery revenue goes to economic development, parks and natural resources, and problem-gambling treatment.
Kris Kain, president of the Oregon Education Association, the state's largest teachers union, said her group is staying out of the public debate because lottery commissioners are "in the best position to judge." Gov. Ted Kulongoski has taken the same stance.
Groups taking sides Groups backing a rate cut include the Oregon PTA; the American Heart Association, which wants to protect physical education classes; the Oregon School Employees Association, which represents 19,000 service workers; and the Oregon AFL-CIO, which wants better health benefits.
Among those siding with retailers are House Majority Leader Wayne Scott, R-Canby, and House Speaker Karen Minnis, R-Wood Village, who submitted letters to the commission.
Business owners such as Rose Moutschka, who runs the Glass House Tavern in Northeast Portland, say they work hard and pay extra for security, tavern insurance, bank fees and health premiums for their employees in order to generate more money for the state.
"There's a lot of cost and risk that people don't see," she told lottery commissioners.
The cautionary position of the school administrators surprised at least one administrator.
"I would think they would be advocates for reducing commissions, although in all fairness, there is a point where you don't want to reduce it so significantly that it affects retailers," said Courtney Wilton, business manager for the David Douglas School District.
"It just seems like there's so much margin," he said, "and it's so profitable to retailers."
Source: Janie Har, The Oregonian
