Below is the HillCO client report from the October 8 Joing Legislative Committee to Study the Texas Lottery hearing.

The committee met to consider the elimination of the state lottery, charitable bingo and the distributions of charitable bingo revenue.
 
 
Texas Lottery
 
Gary Grief, Executive Director, Texas Lottery Commission

  • The Lottery Commission went through a comprehensive review in the last session
  • Sunset Commission report stated that the Commission is operated as a business that generates money for the state but the Commission must also consider those against gambling in Texas for any reason
  • Sunset stated that the Commission has successfully balanced their duties thus far
  • More than $17 billion has gone directly to the foundation school fund from the lottery
  • $39 million has gone to veterans
  • The teaching hospital account has received millions from unclaimed lottery prizes
  • The largest annual transfer to the fund for veteran assistance and foundation school fund was made in 2014
  • Constantly looking for tweaks to the lottery to increase fund transfers
  • Administrative expenditures in 2014 were only 4.61% of lottery proceeds
  • 17,000 retailers partner with the Commission around the state; they earn bonuses, incentive payments as well as a percentage of sales
  • Retailers received more than $200 million in 2014
  • Also assist the state with the debt setoff program by withholding lottery payments until debts are satisfied such as school loans and child support payments
  • The Commission has a play responsibly campaign which reminds players to have conscientious participation in lottery games
  • The public/private structure that maintains the lottery sets Texas apart from other states’ lottery programs; helps shift the burden of performance to the private market while the state tightly regulates the system
  • In 2014 the agency’s HUB and minority owned business participation rate was around 30%
  • Mission will continue to be to provide revenue to education and veterans
  • Sen. Eddie Lucio noted a few years ago it was stated that proceeds from the lottery make up 16% of the budget for education purposes; has that changed
    • About $1.2 billion is contributed by the lottery every year; believes the education budget is somewhere around $60 billion 
  • Rep. Giovanni Capriglione noted lottery revenues make up about 3 days of education for students; asked where the money from a $1 lottery ticket goes; asked about winning percentages and how an increase could increase participation
    • About 63% of revenues go back to players; almost 28% goes to the foundation school fund; 5% goes back to retailers; .4% of unclaimed prizes go to designated programs; about 4% goes to administration
    • In 1997 the legislature decided to reduce the lottery’s payout percentage; the effect was that shrinking payout percentage caused revenues to decrease by 25% over the next three years; then the legislature increased payout percentage which has increased sales again

 
Tom Paladino, Executive Director, Texas Veterans’ Commission

  • Veterans’ Commission advocates for military veterans throughout the state
  • The fund for veteran assistance was given a funding source in 2009 through the lottery proceeds
    • Only about 6 states have a fund like this; state awards grants to nonprofits, counties and cities who have services for veterans; transportation, mental health, financial assistance, skill development, etc.
  • Since 2009 the veteran cash ticket ($2) has provided over $39 million to the fund; 95% of the income to the fund comes from this ticket; have sent out $35 million of that to community grants
  • Other funding sources for the veterans fund are provided through donations, vehicle registrations and other; those account for only 5% of the funding
  • Over 100 organizations have received grants from the veterans fund
  • Lucio asked how many homeless veterans there are in the state and how that assistance is given
    • Not sure how many there are in the state; the number is likely growing; once they are identified, the Commission offers transitional housing to get them off the street; the number that is really growing is homeless female veterans with children; after housing is achieved they are given rehabilitation and skill development assistance

 
Jim Granado, Hobby Center for Public Policy, University of Houston

  • A demographic survey is conducted every year to determine who in the state is playing the lottery
  • Ask questions about family, education, occupation, age and race
  • Trying to determine what the playing population versus the non-playing population and differences in populations that play individual games
  • Have noted that participation rate has fallen significantly since the 90s
  • Rep. Garnet Coleman noted he is concerned that decreasing participation requires those participants to play more in order to keep the revenue static
  • Sen. Larry Taylor asked about demographics
    • Non-players were about 64% of the sample in 2013
    • The only categories where there was a disproportionate distribution were employment and Hispanic origin
      • Retired people and employed people are playing the most
      • A greater proportion of Hispanics are players versus non-players
  • Capriglione asked who the high utilization players are
    • For Powerball there are more unemployed people playing; it depends on the game
  • Capriglione asked about who is winning
    • Beyond the scope of the survey
  • Coleman asked who outliers are that play far more than the rest
    • Whites play $10 a month; $30 for Hispanics; $35 for African-Americans; $17 for Asian
  • Coleman noted his district has the highest number of lottery players and is the poorest district of lottery players; has been in the past; it seems like outliers are being left out because of the use of averages
  • Lucio asked about retailers
    • Mostly in metropolitan areas; do not choose who gets to be a retailer based on any factor other than ability
  • Coleman noted a recent study was done on the potential impact of casino gaming on the lottery and bingo; it was determined that casinos would reduce about half of the lottery’s proceeds; historical racing and video lottery terminals would also take proceeds from the lottery
    • Grief replied that the LBB has studied video lottery terminals and it was determined that there would be a 6% reduction in lottery revenue; there was a reduction in bingo proceeds expected as well

 
Ram Janakiraman, Marketing Research Scientist, Texas A&M University

  • Performed a study that determined decreasing advertising dollars for the lottery would decrease sales
  • If the lottery’s advertising budget were decreased by 25% ($9 million) about $45 million in state proceeds would be lost
  • If it were decreased by 10% , $19.5 million to state proceeds would be lost
  • Concluded that increasing advertising dollars would increase lottery sales
  • Capriglione asked if there are more effective marketing styles; are certain groups targeted
    • Television media is more effective than print or radio; more money is being spent on television currently
    • Targeting is a possibility but the study cannot determine who has been targeted or what targeting would be most effective

 
Bill Hammond, CEO, Texas Association of Business

  • In support of continuing the lottery
  • If it were to go away the education dollars would have to be replaced somehow
  • Performed a survey of Texas registered voters
    • Out of 1,000, 64% were in favor of keeping the lottery
    • 61% play the lottery at least a few times per year
    • Not much of a difference in distribution regarding income levels
    • Support grows higher when people are educated about where lottery proceeds go
  • Coleman noted he is not against the continuation of the lottery but the policy should be looked at in how to best maximize the dollars that come from it; if there were endowments that increased by using pieces of revenue over time, grants and scholarships could be funded as well as other innovative things that cannot be done now

 
Angelos Angelou, Angelou Economics

  • Looked at the historical impact of the lottery on the Texas economy from 2003-2012 and projected the continued impact from 2013-2022
  • Since its inception in 1992 the Texas lottery has had a significant impact on the Texas economy
  • Over the past 10 years, the lottery has been able to support a little over 1 million jobs; generated $4.5 billion in state and local taxes; contributed $15 billion to Texas education; generated about $86 billion on the state’s economy
  • 92,000 veterans have been supported by lottery funds
  • Retailers receive $145,000 in annual revenue
  • For the next ten years’ projection a conservative approach was taken; assuming 2.5% growth for the next ten years; actual growth over the last ten years was closer to 3.5%
  • Estimated that the lottery will generate $86 billion in total economic activity; support another 1 million jobs; payout close to $32 billion in labor income; generate over $4.5 billion in state and local taxes; over $10 billion will be sent to public education
  • Through 2022 between $14-15 billion in revenues will be generated to the state of Texas
  • Expect $500 million would be invested in HUBs
  • Lucio asked about HUB impact
    • The impact is to vendors, data centers and call centers mainly
  • Capriglione noted some of these numbers seem very high; included indirect and induced jobs
    • The job numbers are cumulative for every year in the ten year span; 100,000 jobs per year are supported; does include indirect jobs
  • Coleman asked how much is spent per year on HUB businesses
    • For 2014, $47 million was spent out of an operational budget of around $200 million
  • Taylor noted these numbers are skewed because for every dollar that goes into the lottery a dollar is taken out of the existing economy that could be going to similar places
    • The impact models do not look at individual behavior but overall behavior; the only truly new dollars would come from people travelling from out of state

 
Paul Melton, President, Texas VFW Foundation

  • The organization is very interested in the lottery
  • The veteran scratch off ticket has been very successful
  • Although only 1.6% of the education budget comes from the lottery, 95% of the veterans fund comes from lottery dollars
    • Schwertner made a correction; it was assumed earlier that the education budget is $60 billion but really it is $52 billion per biennium; lottery deposits $1.2 billion per year; lottery makes up closer to 4.6% of the education budget
  • If the lottery should disappear the need for those veterans fund dollars will not disappear
  •  Bingo is an important fundraising venue for VFW halls; one of the largest fundraisers for many posts in Texas
  • Would like a modernization of bingo gaming in the state
  • Schwertner asked how many VFW halls are bingo participants
    • Around 100
  • Schwertner asked how many of those do not get any distribution of charity; believe only 3.7% of gross proceeds go to charity
    • Posts are not required to report to the state headquarters on any distributions; they run independently
  • Schwertner asked if there have been complaints
    • No

 
Rob Kohler, Christian Life Commission, Baptist General Convention of Texas

  • Lottery sales are going up but participation levels are going down so people are paying more than in the past
  • In the past few years lottery tickets have gone from having a most expensive ticket of $10 to a most expensive ticket of $50
  • In 2014 unclaimed prized were a little over $80 million
  • From 2005 and on, scratch ticket sales have increased significantly and all other games have significantly decreased
  • Lottery sales overwhelmingly come from areas of the state with low income, low education, high minority and high public assistance populations
  • Coleman agreed and noted that something needs to be done about this information

 
Cary Rabb, Wag a Bag Convenience Stores; Texas Food & Fuels Association

  • Pay at the pump gas stations cause less foot traffic into convenience stores
  • Lottery is one of the things maintaining foot traffic in stores
  • Without foot traffic people would not purchase items in stores and cause significant losses to convenience stores
  • Lottery commission payments can bring in around $2,000 per store per month
  • Kuempel asked if the lottery going away would have a detrimental effect on convenience store sales
    • Yes
  • Coleman noted he believes any type of video lottery terminal would also have a negative impact on foot traffic and sales

 
Charitable Bingo
 
Alfonso Royal, Director, Charitable Bingo Division, Texas Lottery Commission

  • Bingo was approved by constitutional amendment in 1980 and is the oldest legal gambling mechanism in the state
  • Revenue benefits state and local jurisdictions, charities and players
  • Funding has been appropriated to allow for better reporting methods and more FTEs to handle the regulation of bingo
  • There are two factors that impact the flow of money to charities: prizes paid and organizations’ expenditures
  • Education and training will be the methods to help bingo better serve charities, players and government entities
  • Schwertner asked how many licensees there are
    • 1,110 licensees; mainframe charities
  • Schwertner believes 189 have proceeds of less than $1,000 and a majority of those have negative proceeds
    • Much of that has to do with training and education regarding best methods for reporting and operating; if costs are too high proceeds can be negligible
  • Schwertner asked what percentage of revenues go to charities
    • 4% total
  • Coleman noted the prize money restriction on bingo halls caused a reduction in the number of people who play
    • Smoking bans have caused a decrease as well
  • Coleman asked if people who operate bingo games are employees of the charity itself
    • Sometimes
  • Coleman asked about the effect of video terminals on charitable bingo
    • Could be around 12% decrease because of video terminals
  • Schwertner noted a very small percentage of bingo revenues go to government entities or charities
    • 77% goes to prize payouts
  • Kuempel asked about the network of regulation within the bingo industry
    • There is a lot of change going on especially in the audit and inspection division; attempting to implement recent Sunset recommendations; actual inspections are done  on site and books are audited

 
Bill Kuntz, Executive Director, Texas Department of Licensing & Regulation

  • 26 programs are currently under the management of TDLR
  • In most programs turned over to TDLR, the agency has been able to increase customer service in those industries and decrease licensing fees
  • Have already developed a plan that could help with the struggling bingo industry

 
Steve Bresnan, Bingo Interest Group

  • After Rep. Byron Cook almost added an amendment to the Sunset bill last session that would have required that 5% of proceeds go to charities, the industry has come together to find a way to work better
  • State lottery, casino gaming and eight liners have all decreased bingo sales
  • Historical racing will do the same thing if the Texas Racing Commission rule is held up in court
  • Made comments about how the bingo industry is far more highly utilized than the racing industry
  • Have asked multiple times for advancement in the bingo industry and have been turned down continually because people relate changes to an expansion of gaming
  • Certain things must be done to benefit the bingo industry; crackdown on eight liners, expansive deregulation, modernization
  • Schwertner asked how many states have minimum charitable distributions
    • Not sure about that
  • Schwertner noted he believes if a charity puts their name out for someone to make money from bingo, the charity should get something back from that

 
Public Testimony
 
Barbara Beato, Texas PTA Advocacy Committee

  • Concerned how the $1 billion annual deficit created by eliminating the lottery would be covered

 
Joseph Grenager, Murphy Oil Corporation

  • Operate 260 stores in the state
  • Lottery revenue is the number 5 non-fuel income item for the company; use non-fuel income to pay employees

 
Dawn Nettles, Lotto Report

  • There are problems with the lottery that need to be addressed
  • If sales continue to climb every year why do the state proceeds not increase
  • There is missing money within the lottery commission to the tune of $3 million
  • The reason there is unclaimed lottery proceeds is because the lottery puts out trick tickets and deceptive tickets

 
Debbie McElby, Communities and Schools of Greater Fort Hood

  • Receive grants from the fund for veterans assistance which receives its funding from the veterans scratch off
  • Provide many beneficial services for veterans and their families
  • Kuempel noted the work this group does makes a big difference in children’s lives

 
Community Organizer, Adapt Texas

  • Charitable bingo provides much needed revenue for many charitable organizations