Tennessee lawmakers critical of lottery estimates

May 3, 2004, 9:39 am (2 comments)

Tennessee Lottery

The Tennessee Lottery's income estimates for next year are lower than originally expected, leading at least one lawmaker to criticize the projections.

Lottery officials say the income estimates are conservative, but reasonable.

Lottery CEO Rebecca Paul presented the State Funding Board with an estimate of $692 million in total sales for the fiscal year beginning July 1.

The first-year estimate, which was used when the lottery legislation was debated last year, was closer to $880 million, based on the experience of more mature lotteries in other states.

Now the state has some actual lottery results in Tennessee to look at, albeit for only about 100 days worth of sales and only a couple of weeks of the big-money Powerball game.

Paul told the Senate Finance Committee last week she felt "very, very comfortable" with the projections for next year.

"As we try to project where we'll be, it's difficult to do with only three months of sales behind us, but we're confident that by the end of this fiscal year we'll transfer more than $100 million, and for next fiscal year we're estimating very conservatively $200 million in transfers," Paul told the committee.

That's plenty to cover the estimated first-year cost of scholarships of $176 million, although it's essentially a year-and-a-half of ticket sales covering one year's worth of scholarships.

But Sen. Steve Cohen, the Memphis Democrat who was the prime sponsor of the lottery, wondered why the estimates were low compared to the recent first-year experience of the South Carolina Lottery.

"I was a little surprised and disappointed by the projected figures," Cohen said. "South Carolina did twice what you're projecting we'll do (on a per capita basis). What's wrong with our games?"

Paul said there is nothing wrong with Tennessee's lottery.

"We did very conservative estimates," she said. "There are way too many variables. We're very comfortable with $200 million (next year)."

Cohen said he realized the numbers were conservative, but thought they could be "more realistic." He said Tennessee had better per capita sales than South Carolina in its first three months, and if it continued would have more like $850 million in total sales next year, not $692 million.

There was a concern among some legislators that the lottery corporation executives might have a financial incentive to low-ball the projections if there were to be bonuses offered for exceeding them.

Lottery Corp. Chairman Denny Bottorff says there would be no such arrangement.

"The best way to establish incentives is to focus those against some external benchmark. That's what we'll do," he said. "The budget will not be used as a method to establish incentive targets. External variables will be used. Then you get out of this sort of budget-gaming scenario it sounds like some people are worried about."

Comptroller John Morgan, who as chairman of the Funding Board accepted the lottery's numbers and forwarded them to the governor for budgeting purposes, said the numbers are reasonable.

"Those estimates are right in the middle of the range, and to us it makes a lot of sense to be conservative," he said. "It makes no sense to make aggressive estimates and then find yourself in a position of not being able to fund what you've committed to."

Morgan and others noted that projecting gambling trends is inherently uncertain, even moreso with a new lottery.

"Until we really get it fully implemented and see what it'll produce, and what our scholarship obligations are, it makes sense to be conservative," Morgan said.

Steve Adams, who was state treasurer for years has a good deal of experience with state revenue projections, is now the lottery's chief administrative officer. He says even the state's notoriously whimsical franchise and excise taxes were easier to predict.

"By this time next year I think we'll have a lot better understanding for what the appetite of Tennesseans is for a lottery," he said. "We're 100 days into this and we've got a $120 million Powerball jackpot. Who knows how many of those we'll have? We don't think there's anything wrong with the structure of our games.

"There is no incentive for us to greatly understate that (annual revenue) number. Just as with anything else, you want a good momentum for the lottery that generates positive feelings. Certainly there is some interest in that. But there is no interest in deliberately understating the number."

He said lottery officials are caught in the middle on these estimates.

"If we fail to meet the estimates, well, then the lottery is a failure," he said. "If we greatly exceed them then we sandbagged it and we must be lining our own pockets with the money. We can't win."

AP

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keystonechas

Gee, I see a very simple solution. Wait until one years worth of lottery profits comes into the till. Then authorize that amount for scholarships. No guess work and projections required.

Why can't these dum dum lawmakers figure it out?

Chas

hypersoniq's avatarhypersoniq

why would they argue over money for nothing? The state is ALWAYS the winner in a lottery... they DO look like low-ball projections tho... I guess it depends on the bonus structure... which they should already have known ahead of time...

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