August 3, 2007 State Auditor: Lottery is a highly visible government activity
By Tom Salmon, CPA
Vermont State Auditor
Since I’ve become Vermont State Auditor, one of the most frequent questions I get from people is, “Where does all that Lottery money go, really?”
That’s a fair question, given that the Lottery is one of the Vermont’s most highly visible governmental activities.
Effective July 1, 1998, the Vermont Legislature has mandated that all profits from the Lottery go to the State’s Education Fund “solely for the purposes of state and local funding of public education.” (Prior to that, profits were deposited in the General Fund.) About 62 percent of K-12 spending is targeted to direct instructional services, with the rest going to administration, transportation, food services, and other non-classroom costs. Annual payments to the Education Fund from the Lottery in recent years are listed below.
Net Profit Transferred to the Vermont Education Fund
Fiscal Year To Education Fund % increase
2001
| $16,950,084
|
| 2002
| 16,679,154
| -1.6%
| 2003
| 16,222,604
| -2.7%
| 2004
| 19,580,527
| 20.7%
| 2005
| 20,354,442
| 4.0%
| 2006
| 22,883,768
| 12.4%
| 2007
| 23,306,882
| 1.85%
|
If you look at these numbers, you’ll notice that after Vermont joined the multi-state Powerball lottery game at the beginning of the 2004 fiscal year, the Education Fund became a big winner. In that year, gross revenues for Lottery activities increased by $13 million, breaking a declining trend, and net income increased by $3.3 million. Was Powerball a major reason for that increase? Well, that first year saw Powerball sales of $13.5 million, so my answer would be a definite yes.
Here is how the $104.8 million in gross Lottery revenues for 2006 were paid out:
Prizes to players 63.4% $66.5 million
Tri-State Expenses 2.4% 2.5 million
Agent Commissions
and bonuses 5.9% 6.2 million
Profit to Education
Fund 21.8% 22.8 million
Operating/Administrative
Expenses 6.5% 6.8 million
Of the $6.8 million, actual administrative costs were $2.3 million, and the balance was for items like tickets, network and system costs that are directly related to ticket sales.
The 2006 auditors noted, “The financial position and operating results for 2006 were improved over 2005 due to increased sales in all games, particularly Instant scratch-off games, and there were several large Powerball jackpots over $100 million, two of which were over the $300 million mark.”
It is worth pointing out that even with lower Powerball sales nationwide for the fiscal year ending this past June 30, and higher gas prices, the Lottery staff managed to increase the contribution to the Education Fund by almost 2 percent.
State law mandates that “no less than 50 percent of gross receipts shall be paid out as prizes,” and the Lottery Commission meets that test.
Overall in 2006, the Lottery Commission paid 63.4 percent of gross revenues as cash prizes, with the payout for instant ticket games at 67.5 percent. (Not included in the cash prize amount is about $1 million in unclaimed instant prizes this year heading to the Education Fund.)
Online games, such as the Tri-State Megabucks and Powerball games, were restricted to a maximum 50 percent payout in 2006, but legislative action during the last session will allow the Tri-State payout to increase in the future.
Vermont is one of six jurisdictions never to have had a Powerball jackpot winner. Since joining the Powerball game, Vermont players have contributed almost $52.9 million to Powerball sales, and received $12.8 million in non-jackpot prizes – just over 24 percent of sales. Although most players play Powerball for the large Jackpots, during this same time Vermont players contributed 0.6 percent of all Powerball sales nationally, and received 0.6 percent of all non-jackpot prizes.
It’s clear that players do better with instant scratch-off games, receiving nearly 68 percent of total sales as prizes. Of course, if a lucky Vermonter wins a Powerball jackpot someday, well, then the sales to prize percentages would improve and the State income tax revenues could get a nice bump up as well.
My Office is responsible for verifying that the financial statements of State government are fairly and accurately presented. These statements include business-type activities or enterprise funds such as the Vermont Lottery Commission, which began fiscal operations back in October, 1977. People interested in viewing the most recent Lottery Commission Financial Statements and audit report can check out our website at: www.auditor.vermont.gov. (Click on Audits, then Special Audits.) Lottery Annual Reports can be viewed at www.vtlottery.com.
Have fun playing the Lottery this year, but as Lottery Commission executive director Alan Yandow always says, “Remember, please play responsibly.”
____________________
Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprises. The Vermont Lottery Commission, the Liquor Control Fund, and the Unemployment Compensation Trust Fund, are the largest of the State’s enterprise funds.
Note: 2006 refers to State Fiscal Year 2006: July 1, 2005 to June 30, 2006.
June 30, 2007 audited financial statements are expected in a few months.
|
