HB 678
Department of Legislative Services
Maryland General Assembly
FISCAL NOTE
State Lottery Commission - Video Lottery Terminals - Revenues and Funding
This bill proposes a constitutional amendment which authorizes video lottery terminals (VLTs) at up to 10 locations in the State, provides for the distribution of revenue from video lottery terminals, creates the Education Trust Fund and other special funds, and prohibits the General Assembly from adopting any laws authorizing any additional forms or expansion of commercial gaming.
Fiscal Summary
State Effect: Special fund revenues would increase by an estimated $54.6 million in FY 1999, increasing to $428.1 million in FY 2001, the first full year of operation for all authorized VLTs. Income and other tax revenues could increase an indeterminate amount through economic activity generated by VLT operations. Expenditures could increase for education, horse racing purses, and tourism development to the extent included in future years= proposed budgets and appropriated by the General Assembly. Fee revenues will offset administrative costs of the State Lottery Commission.
(in millions) | FY 1999 | FY 2000 | FY 2001 | FY 2002 | FY 2003 |
SF Revenues | $54.6 | $354.6 | $428.1 | $427.9 | $427.6 |
SF Expenditures | -- | -- | -- | -- | -- |
Net Effect | $54.6 | $354.6 | $428.1 | $427.9 | $427.6 |
Note: ( ) - decrease; GF - general funds; FF - federal funds; SF - special funds
Local Effect: Revenues for localities with VLTs would increase by an estimated $11.7 million in FY 1999, and $29.1 million in FY 2000. In the out-years, this amount would increase by 2% annually. Expenditures would not be affected.
Small Business Effect: Meaningful.
Bill Summary: This bill permits video lottery operations at Laurel, Pimlico, and Rosecroft racetracks, all five existing off-track betting facilities (OTBs) (in Cecil, Dorchester, and Frederick counties, and two in Charles County), and at tourist destination locations in Western Maryland and on the Eastern Shore. Licenses may only be issued at OTBs and tourist destination locations if this constitutional amendment receives a majority of the votes cast in each respective county. Video lottery licensees at OTBs may have 250 VLTs; all others may have 2,000 VLTs for a total of 11,250 authorized VLTs. The bill also establishes the Education Trust Fund (ETF), and details the programs on which expenditures from the fund may be made.
Regulation
The State Lottery Commission is the regulatory body for video lotteries. The commission shall own or lease and control each VLT, associated equipment, and the central computer. Among other duties, the commission must establish application and license fees to cover administrative costs; establish the rules, odds, and method of operation of VLTs; prescribe the grounds and procedures for reprimands and revocation or suspension of licenses; oversee the manufacture, distribution, and servicing of VLTs; require periodic financial reports from licensees; prohibit licensees from allowing minors to play VLTs; and establish the payout percentage, which must not be less than 83% on an annual basis. The commission shall also license video lottery operators, video lottery employees, service technicians, and manufacturers. The commission has the authority to inspect and examine all premises in which video lottery operations are conducted and any VLTs and associated equipment, and to seize any VLTs and associated equipment. The commission may also inspect, examine, audit and seize books, records and documents relating to a licensees VLT operations.
At least $100 million must be invested by each licensee on construction and related costs, except for OTB licensees, who must invest at least $10 million each. License holders at race tracks must provide 500 additional full-time jobs; those at tourist destination facilities must provide 800 full-time jobs; those at OTBs must provide at least 200 additional full-time jobs. If licenses are issued to tourist destination facilities, the State Racing Commission is to issue OTB permits to the license holders. All video lottery licensees must endeavor to spend 14% of the total dollars spent on construction and procurement on services and goods provided by minority businesses.
Distribution of Revenue
The first allocation of revenue is for the costs of leasing, purchasing, repair, and maintenance of VLTs and associated equipment, as well as impact aid for counties where VLT facilities are located. If, at the end of the fiscal year, the proceeds from all VLTs average $250 per day per machine or less:
! up to 47% of the remaining proceeds (after the above costs) are distributed to the video lottery facility licensee;
! 9% is distributed to the purse dedication account;
! 1% is distributed to the Maryland Tourism Development Board;
! 0.5% is distributed to holders of track licenses except those who have video lottery facilities;
! the remainder (at least 42.5%) is distributed to the Education Trust Fund.
If proceeds from all VLTs exceed $250 per day per machine, the above distribution is followed for the first $250. Of the excess, no more than half, as determined by the commission, is distributed to the VLT licensees, and the remainder (at least half) is distributed to the ETF.
Education Trust Fund
A nine-member Education Trust Fund Board, chaired by the State Superintendent of Schools, is created to oversee the allocation of expenditures from the ETF. The State Superintendent of Schools is the chairman of the board. The board is required to report to the Governor and General Assembly by November 1 each year on the beginning balance and projected revenues of the fund, multi-year commitments for operating or capital purposes, and the proposed overall budget and allocation of funds for the upcoming fiscal year. The Governor may adjust the board=s proposed allocation of funds within the overall ETF budget and purposes for which the funds are designated.
Expenditures on the following programs are authorized from the fund:
! the extended elementary education program, which is an existing program providing pre-kindergarten programs to four-year olds from low-income families;
! full-day kindergarten with before and after school care for Aat risk@ children eligible for free and reduced price meals (a new program);
! technology in education, to fully fund the Maryland Plan for Technology in Education, which calls for all schools to be wired for technology and for the provision of hardware, software, and teacher training;
! the
! the Opportunities Scholarship Fund, for scholarships of up to the full cost of University of Maryland, College Park tuition for Maryland high school graduates and college students with B averages or higher and family incomes of not more than $85,000 (a new program);
! the State=s student financial assistance programs, to reduce waiting lists for financial assistance;
and for
! the Eminent Scholar Fund, to create endowed chairs;
! raising faculty salaries to the 90th percentile of their peer institutions;
! providing and maintaining information technology infrastructure.
Expenditures may also be made from the fund for the public school construction program or any other education related purpose approved by the board. The Governor is to include in each year=s proposed budget for these programs an amount not less than the amount appropriated in the prior fiscal year.
Other Revenue Uses
The Purse Dedication Account is created to enhance purses at the racetracks. Expenditures may only be made through an appropriation in the State budget or by budget amendment, and only by the following allocation: 62.3% to mile thoroughbred purses; 7.7% to the Maryland-Bred Race Fund; 26.67% to standardbred purses; and 3.33% to the standardbred race fund.
Funds distributed to the Maryland Tourism Development Board shall be expended for statewide tourism promotion, including heritage and other tourism areas. A Compulsive Gambling Fund is established, and funded by a $350 annual fee for each VLT. The fund is to be used by the Department of Health and Mental Hygiene for a 24-hour hotline for compulsive gamblers, and to provide counseling and other support services.
State Revenues: The table below shows the estimated proceeds of VLTs and their distribution for fiscal 1999, the first year of operation, through fiscal 2001, the first year in which the full allotment of VLTs would be in operation for the entire year (numbers may not add due to rounding).
Distribution of Estimated VLT Revenues Fiscal 1999 through Fiscal 2001 | |||
FY 1999 | FY 2000 | FY 2001 | |
Vendor Costs | $10,758,000 | $65,443,000 | $78,750,000 |
Impact Aid | 11,742,000 | 29,143,000 | 29,725,000 |
VLT Licensees | 48,910,000 | 317,408,000 | 383,253,000 |
Purse Dedication Account | 9,366,000 | 60,780,000 | 73,389,000 |
Tourism Promotion | 1,041,000 | 6,753,000 | 8,154,000 |
Non‑VLT Tracks | 520,000 | 3,377,000 | 4,077,000 |
Education Trust Fund | 44,227,000 | 287,018,000 | 346,558,000 |
Gross Proceeds | $126,563,000 | $769,922,000 | $923,906,000 |
These estimates are based on average proceeds per VLT per day of $225, and assume one-third of the VLTs are operational in February, 1999, one-third in July 1999, and the final third in January 2000. It is assumed that vendor costs would total approximately 8.5% of gross proceeds. The estimates show the maximum distribution to VLT licensees; the commission could distribute a lesser amount. If so, the difference would be credited to the ETF.
If the average proceeds per VLT per day were $300, the distribution to the ETF would be an estimated $481.8 million in fiscal 2001, and the distribution to VLT licensees would be an estimated $522.0 million.
Revenues would also increase an indeterminate amount through application, license, and other fees. The commission is to set these fees to cover the costs incurred in the regulation of VLTs. This revenue increase cannot be reliably determined at this time; the commission would set the fees by regulation.
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