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Thursday, January 8, 2009

Lange Proposes Increasing State Share of Video Lottery Revenue

Governor Mike Rounds is challenging legislators to find sources of revenue to address the state's dire budget shortfall. District 8 Representative (and my neighbor!) Gerald Lange answers that challenge by proposing the state increase its chunk of video lottery revenue from 50% to 70%.

My blogospheric neighbor Pat Powers lambastes the idea... but then Pat Powers would lambaste Gerry for voting to send flowers to your grandmother. Powers says taking more money from video lottery will either increase our dependence on it or drive down revenues. Industry lobbyist Larry Mann agrees with the latter, telling that Sioux Falls paper that increasing the state's share would decrease revenue... although I fail to see the connection between the share the state takes and the motivation of video lottery players to keep chunking their money into the machines.

70% may sound like a high share (especially if you're one of the kind folks making profits off addictive behavior). That Sioux Falls paper notes that Montana only takes 15%, while Oregon has a sliding scale that takes 89% from the top earning establishments.

I mentioned over at the War College that lottery may be a recession-proof business. New York saw lottery revenues increase over the first three quarters of 2008; however, many states are showing declines as the recession wears on. Some Oregon establishments have seen a drop in video lottery revenue, but the cause is more likely the economy and a new smoking ban.

Casual gamblers may cut back, but problem gamblers may hit the machines even harder. That dynamic may be all the more reason to increase the state's share, to reflect, as Rep. Lange says, the social cost gambling imposes on the state.

Perhaps the two reasons Mr. Powers gives for criticizing Lange's proposal are actually reasons to embrace it. Gambling, like smoking, is bad for society. Taxing it more helps cover the externalities Rep. Lange mentions. If those taxes rise high enough to drive some of that activity out of business, well, maybe the state still comes out ahead.

Rep. Lange says the 70% number is negotiable; he wants to "spur debate"—and that's one more reason we should be glad to have Gerry back in Pierre. You want ideas? Gerry Lange has 'em. He won't just play shell games with existing funds: he'll challenge the legislature and us to make hard choices and pay our way.

Update 10:30 CST: Representative Lange is also planning to introduce legislation to create a full veterinarian program at SDSU. Now that's serious legislating!


  1. Getting rid of them completely would be a far better idea for Gerry Lange to consider. I can't remember the last time I put a quarter in one of those machines. It makes little sense to fund our state gov't on the shoulders of those who can least afford it. I've had friends whose live were destroyed by the video lottery.

    A simple increase in the state sales tax would be a far easier and painless way to fund state gov't. The bureaucracy is already in place.

    We also need to get that sales tax collected from internet and catalog sales. Residents are supposed to pay use tax on those items now but most are not even aware of the state law.

  2. Anon 10:44,

    I agree about collecting the use tax. I can't get away without paying it because I, as a small business, have a sales tax license and it's clearly spelled out on the returns. I'd get nailed if I didn't pay it.

    We should enforce collections of taxes we already have before increasing the rates or implementing any new taxes. The problem with the use tax is that it's difficult to enforce on people who don't have a sales tax license.

    The use tax encourages me to buy in-state as much as possible (to avoid paying it), even though technically, doing so may not save me any money (the state will charge sales tax anyhow). That's good for the state because it helps out state businesses.

    I've been ridiculed for mentioning that people ought to pay the use tax as a matter of principle. But even a totally unprincipled person should realize that paying the use tax reduces the risk that the state will someday have to implement a new, more onerous tax (income tax?) to make up for the shortfall.

    I should also suggest, as I did at the "War College," that we should focus on reducing state spending before we increase state revenues (even by Gerry's proposed method, which seems innocuous to me).

  3. we wouldn't need more money if those buffoons would cut spending. all this will do is hurt businesses and tork people off. it will never pass.

  4. Cory, you know as well as I do that the effectiveness of a bill should be measured against its intent. Its intent, as put forth by “that Sioux Falls paper” is to generate more revenue for the state, although Gerry’s final quotes of that “there’s a social cost that ought to be covered by the video lottery people” makes me wonder what his true intent would be.

    If the intent is to simply raise revenue, it fails. Video Lottery is often up for debate and repealing it makes the ballot every couple election cycles. Its long-term reliability is questionable. Funding our state off of possible short-term funds is not a solid plan. I agree, ideas are good, but let’s look for real, long-term solutions so we won’t again have to attempt to fix a problem someone tried to fix a couple years ago.

  5. Tax and Spend...Tax and Spend...Obama, Lange and all the other Dems are riding high again so hang on to your wallets.

  6. Oh, Anon 8:14: You're so uninformed, it's almost funny.
    Care to square your silly Rush Limbaugh impersonation with these facts:

    On spending, a couple weeks ago on Inside KELOLand, Democratic Senate leader Scott Heidepriem was proposing cutting government spending, while Republican Senate leader David Knudson was defending the increases in state spending that have taken place under the usual Republican control in Pierre.

    On hanging on to your wallet, if you review the bills that have already been filed for this legislative session, you have all sorts of proposals to increase your fees/taxes for drivers licenses; license plates; various professional licenses; coin-operated washers and dryers; registration and inspection of restaurants, lodging, and campgrounds; storage facilities; sports and rodeo officials; and the sale of ostriches, emus, and rheas. These proposals come from the Department of Revenue and Regulation and various legislative committees, all controlled by Republicans.

    Oh yeah, and Republican Governor Rounds wants your property tax to go up.

  7. I am responding only because my name was used in your original post. Many people believe every licensed machine is fabulously profitable. The fact is many machines are marginally profitable. If the state's share is increased by 40%, owners will simply shut down the marginal machines resulting in a potential loss of revenue to the state rather than a substantial increase.

  8. Curious, Mr. Mann: do lobbyists get paid for commenting on blogs, too? ;-)

    Further curious (and I happily display my ignorance of the industry here): how can a video lottery machine be only marginally profitable? Are those machiens not drawing enough customers, or are the machines actually expensive to operate and maintain?

  9. As far as my lobbying activities go, I am not trying to influence your vote because you are not a member of the SD Legislature. The answer to your question is yes, the machines are expensive to operate and maintain. The state takes their share but does not participate in sharing expenses. You asked a good question.

  10. I appreciate a professional who can clearly delineate business from pleasure (I hope commenting here qualifies as the latter). Thanks for the explanation!

    Obviously I don't run a bar, so I don't know all the costs. From my outsider perspective, it would seem the only costs would be getting the machine and plugging it in. What else does a guy have to do to run a video lottery terminal?

  11. Few bars, gas stations, and whoever else actually own the video lottery machines. I think Sioux Falls Music Service owns most of the ones around Madison. These companies also own the dart bars, jukeboxes, pool tables, and other coin operated games. The companies drop the machines off, rotate them, and maintain them. Normally they get around 50% of the money (25% after the state takes its half), leaving the local business with 25%. If the machine can’t be seen by the bartender or clerk, they have to have video monitoring (I’m not for sure if it has to be recorded). Also the local business has to put up whatever cash is own, so if you have four machines and each pays out $1,000, you have to put up the $4,000 cash to those winners. I think there are some provisions that allow the business to delay winnings, but most people (customers) like to get the money they won right away.

    If the state increases its share from 50% to 70% it would significantly hurt those local businesses. I’m sure places like Sioux Falls Music would say that their expenses don’t decrease, so they still might want that 25%. That leaves 5% left for the business owner, a pretty sizeable decrease. Even if places like Sioux Falls Music were willing to comprise to 20% or 15%, a pretty big hit is taken by the business (which is perhaps a place that has to pay a lot of the “social costs” Lange talks about).

  12. What is Gerry now, the new Vice Squad of the legislature? First Gerry supports legalizing medical marijuana and now dig deeper into video lottery gambling. When does your Education Proposal come out, Gerry? I can't wait.


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