Members of a special legislative committee harshly criticized the Minnesota State Lottery’s expansion into online ticket sales Tuesday, and appear willing to end the Internet venture.
“I know it’s a difficult issue, a controversial issue, people have money in it,” said Sen. Roger Chamberlain, R-Lino Lakes. But the lottery director “entered into a bad deal" with online vendors.
A bipartisan coalition of legislators oppose the lottery’s expansion into online scratch-off lottery ticket sales, saying lottery officials did so without authorization. They are also critical of the lottery for embarking on a new initiative to sell lottery tickets at high-tech gas pumps.
Lottery director Ed Van Petten said they are merely selling the same games they always have, only now through the Internet and gas pumps. He insists they do not need legislative permission to do so.
The lottery's online expansion has drawn the attention of charitable gambling advocates, tribal casinos and convenience store owners fearing that the online sales will cut into their businesses.
Van Petten told the committee that prohibiting online sales will make it harder to reach younger customers, a computer savvy group that has shown less interest in traditional lottery tickets.
“We have found simply that the lottery is not on the minds of young adults,” he said. “We just feel like the added brand awareness, that the Internet presence will bring, will educate our players and bring new players into the retail environment.”
Lottery tickets sales are declining, but profits have remained strong as record lottery payouts have spurred existing customers to spend even more.
Halting online sales could cost the state millions, both from breaking contracts with online vendors and in lower profits for the state. Lottery profits are specifically earmarked to go into the state general fund and for a list of environmental and conservation efforts.
Since February, the new online games account for just $235,000 compared to $145 million in conventional paper ticket sales.
Van Petten praised the state’s charitable gambling industry and said does not aim to compete with them. “It’s a great system and I have no intention in trying to harm them,” he said.
Rep. Leon Lillie, DFL- North St. Paul, criticized Van Petten for not being more available to legislators with questions and concerns in the last month.
“I feel like we are being held hostage” by the lottery’s contract with online vendors, Lillie said. “I am greatly disappointed in so many different areas.”
In an interview after the hearing, Van Petten said he has attempted to provide information whenever legislators asked for it.
“I am not a lobbyist, I am an administrator and I have an agency to run,” he said. “I didn’t see the need for a continual presence.”
The full Legislature could vote to block the lottery’s online gambling initiative this week.
Minnesota tax collections lagged a little behind expectations in April, coming in at $1.7 billion.
Overall income tax, sales tax and corporate taxes were off a combined $12 million, about 0.7 percent below the forecast.
Individual income tax withholding in April was off the most, down $19 million. April sales tax receipts were up $17 million over the forecast, a rise of 4.3 percent over predictions.
For fiscal year 2014, tax collections are at $15.371 billion, $78 million below estimates.
Minnesota Management and Budget officials said in a statement that monthly revenue reports can swing wildly and “should be interpreted with caution.”
Nearly 1 million Minnesotans will get $103 million in new tax breaks as part of a measure finalized Thursday, with more than half devoted to direct property tax relief for homeowners, farmers and renters.
“We wanted to do it as direct as possible,” said state House Taxes Committee chairwoman Ann Lenczewski, DFL-Bloomington. Homeowners, renters and farmers will get “super-sized” rebates this year.
House and Senate DFL leaders have been working for weeks to agree on a tax relief package using the remainder of the state’s $1.2 billion projected budget surplus.
House Minority Leader Kurt Daudt, R-Crown, said there is strong bipartisan support for tax relief this session. He has not reviewed the measure in detail, but expected it would have at least some Republican support.
About 940,000 homeowners, renters and farmers will get additional tax relief as part of the new measure.
Legislators earmarked $17 million in property tax relief for more than 90,000 farmers. The average farmer in Minnesota will get $410 in direct property tax relief, an increase of about $200.
Homeowners will share $12.1 million in property tax relief and renters will get an additional $12.5 million in property tax relief for the year.
“There is a good balance of tax relief for everyone,” said Senate Taxes Committee chairman Rod Skoe, DFL–Clearbrook.
Legislators are devoting $4.5 million this year and $10 million next year to control invasive species at public-access boat landings.
The House and Senate also want to create a pilot project to help retention and recruitment of volunteer first-responders. Volunteers in 14 qualifying counties will get a $500 stipend to stay with their squad.
Military income paid to National Guard members, whether active duty or reserve, will be tax free, under the proposal.
Parents of students struggling with reading can get a tutoring credit of up to $2,000 a year. The proposal also changes the timing of when businesses can submit sales tax payments, easing cash flow problems for many businesses.
The measure also includes more than 80 pages refinements and changes to clean-up the tax code. Modernizing of the state's tax law is part of Gov. Mark Dayton’s massive government streamlining effort he launched earlier this year.
The measure does not include an expansion of the childcare credit, a provision Dayton has pushed for strongly.
The governor wants to expand the child tax credit to all families, not just low-income families. Doing so would increase the costs from $15 million a year to nearly $74 million.
House Speaker Paul Thissen, DFL-Minneapolis, said the tax credit is good policy, but too expensive to tackle this legislative session.
The House and Senate are expected to pass the tax measure next week, likely with strong bipartisan support.
This is the second tax relief measure of the session. All told, more than 2 million Minnesotans will get a total of $550 million in tax relief if the new measure becomes law.
Minnesota's fledgling online lottery operation has been thrown into jeopardy as the state Senate passed a measure Friday banning Internet lottery ticket sales.
The move came as legislators have blasted Minnesota Lottery director Ed Van Petten in recent days for embarking on online lottery ticket sales without legislative approval.
“I am not saying the lottery director overstepped his bounds,” said Senate President Sandra Pappas, DFL-St. Paul. “But it is a reasonable request to ask the lottery to slow down.”
The proposal was tacked into another gambling-related measure that passed 55-2, with strong bipartisan support.
Lottery officials insist they do have authority to branch off into online ticket sales.
“They are making a huge mistake,” Van Patten said Friday.
Van Petten said he presented legislators with data showing the benefits of online sales and that it does not hurt convenience stores that sell traditional lottery tickets.
“They didn’t even read it,” he said of legislators. “There are forces greater than me pushing this.”
Operators of the state’s 18 tribal casinos – who are significant contributors to both parties -- have watched the measure closely. They do not believe that lottery officials have authority to sell tickets online.
Nationally, the recession-racked casino industry has fought hard against new online gambling as casino owners look to prevent further erosion of their business.
It is not clear whether the House will take up the measure, but there is strong support among its members on both sides of the aisle.
DFL Gov. Mark Dayton, who appointed Van Petten, has urged caution.
“The governor wants to know whether these exclusions are benefiting the people of Minnesota, or the vested economic interests that make money off the status quo,” said Matt Swenson, a Dayton spokesman. “He has said we need to separate clearly what is in the public interest, and what is in the moneyed interest.”
Minnesota Lottery officials have been trying to find new ways to reach customers as sale of traditional paper tickets have languished.
Van Petten views the online sales a marketing tool to reach younger consumers who are more comfortable making purchases online. They say research shows online sales actually help retailers.
So far, about 8,500 Minnesotans actively buy lottery tickets online, a tiny fraction of the 1.2 million who regularly buy conventional tickets from retailers.
Lottery proceeds go to the state budget and to environmental and conservation causes.
State legislators will make up lost revenue by pulling money from the state budget.
“I think lottery officials are wrong and they shouldn’t do it,” said Senate Minority Leader David Hann, R-Eden Prairie. “If it requires legislation to make that clear, then we ought to pass it.”
Gov. Mark Dayton is blasting legislative Republicans for refusing to pay for additional construction projects that could bring new economic development to the state.
“They are just dead wrong,” Dayton said Tuesday. “The Republicans have been wrong on this since I arrived. They are short-changing projects all around the state that are job-creating projects.”
Democratic and Republican legislative leaders cut a deal last year to limit new construction spending to about $850 million this session. They made the agreement before a strong economic turnout left the state with a surplus of more than $1.2 billion.
Dayton says the strengthening economy and strong budget outlook give the state more cushion to increase statewide borrowing to pay for roughly $400 million in additional projects.
Since state borrowing requires a two-thirds vote, the measure gives Republicans a rare moment of leverage as Democrats control both the House and the Senate.
Republicans say that the state should not run up taxpayer debt, and leaders have publicly not budged from the $850 million target. They say that the agreed upon number fits with historical averages and see no reason to break from it now.
The statewide construction measure stands as one of the last major initiatives to get completed in the final weeks of the legislative session.
Dayton said a recent Star Tribune story about an unfinished water project in southwestern Minnesota “is a prime example of where the lack of a public investment has crippled that area for economic growth.”
The governor said he is willing to fully fund the water project if it would persuade some GOP legislators to support a higher borrowing measure.
“I don’t think they have a toenail to stand on to justify this rigid ideology,” Dayton said. Holding to that number “would deny a whole range of projects around the state because of their fiscal ideology.”