Under these assumptions, in the initial year of operation, the bill would be expected to increase School Aid Fund (SAF) revenue by $4.2 million to $44.9 million, and City of Detroit revenue by $10.8 million to $12.5 million. Private agricultural interests would receive, through purse pools, grants and breeders( awards, between $42.2 million and $127.7 million, while tracks would receive between $58.2 million and $201.1 million in commissions.
In the second full year of operation, the bill would be expected to increase SAF revenue by $4.5 million to $46.4 million, and City of Detroit revenue by $9.8 million to $13.3 million. Private agricultural interests would receive between $44.8 million and $133.8 million, while tracks would receive between $61.7 million and $212.1 million in commissions.
School Aid Fund (Hold Harmless( Provisions
House Bill 4610 (H-3) contains provisions to earmark additional money to the School Aid Fund should a specific subset of State lottery games and/or revenue from the State casino gaming tax decline from the FY 2003-04 level ((hold harmless( provisions). Any contribution to the SAF from VLTs would not be considered when computing the hold harmless amounts. Because of the formulas for distributing money and the manner in which the hold harmless payments would be computed, there would be a number of circumstances in which no hold harmless money would be distributed or it would be insufficient to hold the SAF fully harmless. There also would be circumstances in which the provisions would hold the SAF harmless for events unrelated to the addition of VLTs to racetracks.
First, because revenues to measure the hold harmless provisions are measured against FY 2003-04 final revenues, any loss to lottery and casino revenues experienced in FY 2003-04 would not create hold harmless payments; thus, the bill would not (hold harmless( against those losses. Second, the revenue to hold the SAF harmless would come from the residual created after the first $90 million received by the State Treasurer was distributed. In years when the State Treasurer did not receive $90 million, no money would be available for hold harmless payments to the SAF even though the SAF would have already experienced reductions from lost lottery and casino revenue. Third, out of the residual from the $90 million, the Agricultural Enhancement Fund and the SAF each would receive 15% before any money would be available to make hold harmless payments. In the example above during the second full year of operations and at an average of 2,000 VLTs per track, $109.6 million of residual would be available, of which $16.4 million would be distributed to the SAF and the Agricultural Enhancement Fund each, leaving a balance of $76.7 million. However, under this situation the SAF is forecasted to lose $43.0 million in revenue from the lottery and the Detroit casinos--more than half of the amount available to hold the SAF harmless. With fewer machines and/or more popular VLTs, the loss to the School Aid could exceed the amount available to hold the SAF harmless.
Despite the possible shortfalls in hold harmless payments, the bills also would trigger hold harmless payments when no loss was attributable to the operation of VLTs in the State or when the SAF might not have even taken a loss. Traditionally, when the lottery has introduced new games, a portion of the activity on the new games has been derived from decreased activity on other games. Because the bill would fix the games examined to create hold harmless payments, new games introduced by the lottery would reduce payments and trigger hold harmless payments. Similarly, SAF payments from the lottery vary from year-to-year and may decline for economic reasons unrelated to VLTs or even competition from casinos. School Aid Fund payments from the lottery have declined in every fiscal year since FY 1999-2000 and are estimated to decline in FY 2003-04 even without the introduction of VLTs. Lottery deposits to the SAF also declined four times in the 10 years prior to FY 1999-2000: in FY 1989-90, FY 1990-91, FY 1992-93, and FY 1995-96.
Account Wagering and Off-Track Betting
The amount of revenue generated from off-track betting (OTB) and account wagering under House Bill 4609 (H-2) would depend largely upon the amount of new gaming activity generated. Both options would essentially make it easier to place bets on races because bettors no longer would have to travel to an actual racetrack to place bets. Off-track betting parlors would have to be located 25 or more miles from any other OTB parlor or racetrack, although the bill provides an exception for this limitation, suggesting that much of the activity that would take place at OTB parlors could involve individuals who would not otherwise travel to the racetrack to place bets. On the other hand, account wagering tends to provide incentives for individuals not to travel to either racetracks or OTB parlors because bettors would be allowed to place bets through the telephone, internet, and/or other communication media.
Using other states( experiences with OTB and account wagering, the effect on wagering can be estimated. The State School Aid and GF/GP Funds do not receive revenue from gaming activities at racetracks and would not receive revenue from OTB parlors or account wagering. The Agriculture Equine Industry Development Fund would receive 3.5% of the wagers, less prizes paid. Depending on the popularity of OTB parlors and account wagering, the bill would be expected to increase State revenue to the Agriculture Equine Industry Development Fund by between $1.2 million and $1.7 million in FY 2004-05 assuming an October 1, 2004, implementation date. Currently, the Fund receives about $11.0 million from simulcast wagering at Michigan(s seven licensed racetracks. This tax revenue is appropriated for administrative expenses, purse supplements, and owners/breeders( awards. Any new revenue would be available for the same purposes.
Penalties
The penalty provisions in House Bills 4610 (H-3) and 4611 (H-1) would have an indeterminate fiscal impact on State and local government.
There are no data to indicate how many offenders would be convicted of the proposed Class D crime of manipulating the outcome or payoff of a video lottery game. Offenders would receive a sentencing guidelines minimum sentence ranging from 0-6 months to 43-76 months. The fiscal impact for each offender would depend upon the sentence and the incarceration option chosen by the court. Local units would incur the costs, which vary by county, of incarceration in a local facility. For those placed on probation, the State would incur the cost of felony probation at an average annual cost of $1,750, while the annual cost for those incarcerated in a State facility averages $27,000.
Public libraries would benefit from any additional penal fine revenue raised due to the proposed changes.
This estimate is preliminary and will be revised as new information becomes available.
Date Completed: 4-28-04 Fiscal Analyst: David Zin
Floor\hb4610
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.
Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. hb4610/0304 |
