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Howard Stutz

Nevada Lottery Faces Usual Obstacles

27 January 2005

NEVADA -- In states offering both lotteries and casinos, the two forms of gaming have learned to coexist.

Nevada may be a different matter.

While Democratic legislative leaders prepare a lottery proposal in which proceeds would help fund the state's public education system, casino leaders are apprehensive.

The matter was shot down in the 2001 and 2003 sessions, and gaming officials said the state shouldn't be in the same business as its largest commercial enterprise.

"I liken it to the state of Washington building airplanes or Michigan manufacturing automobiles," Station Casinos spokeswoman Lesley Pittman said. "Historically, our company has opposed a state lottery on a philosophical level. We don't believe the state should compete with its primary industry."

There is a large difference between Nevada and the rest of the country. States began adding legalized casino gaming in the 1990s, long after most lotteries had been established. Nevada is the reverse, with casinos legalized in 1931.

Assembly Speaker Richard Perkins, D-Henderson, one of the lottery plan's primary supporters, believes there is room in Nevada for two styles of gaming. He said the casino industry could support a lottery if it can be shown funds generated would enhance educational budgets.

"They are not jazzed about the idea, but the gaming industry understands we must do something more for public education," Perkins said. "We're putting a lot of thought into how we can make this work for all parties."

While attending a national conference for state Assembly speakers recently, Perkins met with representatives of Gtech Holdings Corp., a Rhode Island-based company that manages government lotteries and provides systems.

Perkins said the company gave him ideas on how to implement a lottery in Nevada.

Gtech spokesman Robert Vincent said Perkins "received a crash course in Lottery 101, which is what we would do for any state representative." But the company didn't commit to helping push the matter through the Legislature, which convenes Feb. 7.

"We don't normally participate in the political side of the debate," Vincent said. "We will follow what happens in Nevada because we obviously have an interest in seeing how the matter plays out."

Proponents said the lottery could generate between $30 million and $50 million annually in profits.

A general rule has 30 percent to 40 percent of a lottery's proceeds going toward the public benefit. More than 50 percent is used to pay winners, while anywhere from single digits to 20 percent pay administrative costs and commissions to retailers.

In the nearly 20 years California has operated a lottery, $16 billion has been generated for schools, annually funding about 2 percent of the public education system's budget, lottery spokeswoman Rosa Escutia said. The New Jersey lottery, which has operated since 1970, has contributed more than $765 million toward education and other state programs.

How the money for public consumption is used varies by state. In California, 77 percent of the money for public education is earmarked for teachers' salaries and benefits; 18 percent goes toward classroom materials.

"It's not a lot, but it's a supplement to the education budget; it's not intended to replace state funding," Escutia said.

Perkins said a similar plan will be written into the Nevada proposal so lottery earnings wouldn't supplant state budget education appropriations.

MGM Mirage spokesman Alan Feldman, however, isn't sure that's possible.

"The education budget is a fluid number and it changes year to year, so you can't really track if it's an enhancement or not," Feldman said.

He cited the Georgia lottery as the best use of lottery proceeds for education. Instead of going into the budget, winnings are used to fund student scholarships, much like Nevada's Millennium Scholarship program, which is paid for from money the state won in the legal settlement with tobacco companies.

Some gaming leaders said it doesn't hurt to debate the topic. Mandalay Resort Group Executive Vice President Mike Sloan served on a task force that studied the state's tax structure in 2002. One of the suggestions to raise money was to implement a state lottery.

"I'm not saying we should have a lottery, but I'm also not saying we shouldn't explore the subject rather than just dismiss it outright," Sloan said. "We're in a situation now where we have a pretty good surplus, but that's also the best time to look at funding issues should we hit a bump down the road. It's been brought up several times and there's always huge opposition. I don't know if it would generate a significant amount of cash, but it's worth looking into."

Others, however, believe legislators should consider more pressing matters.

"This whole unfortunate discussion distracts us from debating more substantive issues, such as fixing our antiquated tax structure," Feldman said. "We need to deal with that matter first."

A proposed state lottery invokes many questions above and beyond whether proponents can get the measure approved in two consecutive legislative sessions and by a subsequent majority vote of the electorate, all of which is needed to amend the state constitution, which prohibits a lottery.

Who would administer it?

Lotteries and casinos operate separately in states where they both do business. In California, the state lottery is governed by the California Lottery Commission, which is far removed from the state's casino regulators, who have jurisdiction over American Indian properties.

The New Jersey lottery is a division of the state's Treasury Department. Meanwhile, an independent gaming commission shares jurisdiction over the casinos in Atlantic City with the New Jersey Division of Gaming Enforcement, an arm of the state attorney general's office.

Perkins hinted the proposal might require Nevada's gaming regulators to oversee a potential state lottery.

"We're the model for gaming regulation in the country," he said. "To save on administrative costs, we already have a very capable agency that could regulate a lottery."

Others, however, don't believe that would be possible.

"My initial reaction would be to have a lottery regulated by a separate agency," Nevada Gaming Control Board Chairman Dennis Neilander said. "I think it makes more sense. I don't not know if we've thought that far along yet."

What type would be used?

Some gaming leaders said video lottery terminals, which look and act much like casino slot machines, would be cause for alarm in the Nevada.

In California, several American Indian casinos implemented video lottery terminals as way of getting around negotiating new gaming compacts before state officials put a halt to the practice.

Perkins said the lottery proposal would ban the use of video lottery terminals, relying instead on the traditional scratch cards and random number selection.

Where could people play?

In both California and New Jersey, 7-Eleven convenience stores are the dominant lottery retail outlets. Other locations include grocery stores and liquor stores. In Atlantic City, several Boardwalk casinos allow lottery tickets to be sold in retail locations.

Of the more than 18,000 locations that sell lottery tickets in California, the top retailer is a convenience store operated by MGM Mirage near Primm on the California side of the border. The store sold $6 million in lottery tickets in 2004, Feldman said.

Lobbyist Bob Crowell, who represents the interests of 7-Elevens in the Nevada Legislature, said the company hasn't taken a stand on the proposed lottery.

"I've passed the information on to the client and I haven't heard back on what they want to do," Crowell said. "My guess is they would probably stay away from the public policy debate."