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Lottery Debate Dominates Several Budget Hearings

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As Governor Tom Corbett mulls his next steps, Revenue Secretary Dan Meuser spent the bulk of his House budget hearing defending the recently-rejected Lottery contract.  Meuser remarked that the premise for much of the opposition is wrong.  “There’s no plan to sell the Lottery.  We cannot by federal or state law.  There is no plan to relinquish control of the Lottery.  We maintain full control of the Lottery,” he emphasized.

At issue is the private management agreement the Corbett administration negotiated with Camelot Global Services, in which the private company has guaranteed record profits over the next 20-years.  The administration has been working on this for nearly a year, because the demand for senior services is growing at a pace that’s too rapid for the Lottery Fund to sustain. 

On Valentine’s Day Attorney General Kathleen Kane called that contract illegal and unconstitutional, and she rehashed that decision in front of the Senate Appropriations Committee on Wednesday.  Kane’s main points were: 1) the contract infringed on the legislature’s authority, and 2) KENO is not an authorized game under the Lottery Act. 

“I am not an economist and I don’t pretend to be, I am a lawyer, and we went through the statutory construction of the Gaming Act, the Lottery Act, as well as the General Assembly’s authority,” Kane said as she told the panel this was not a policy decision. 

Revenue Secretary Dan Meuser

Revenue Secretary Dan Meuser

But Secretary Meuser disagreed with both of Kane’s major points at his House hearing one day earlier.  “The law clearly states – laws granted by the legislature – granting the Department of Revenue the ability to hire vendors for the effective and efficient growth of the Lottery, and to promulgate new games. 

Meuser also contends that KENO – which was rolled out in nearby Ohio a few years ago – falls within the scope of the Lottery’s terminal-based game regulation, not the “slot machine” definition of the Gaming Act.  He says KENO would us the same algorithm as some exiting Lottery games. 

In lieu of a protracted legal debate, some Democratic lawmakers are calling on Governor Corbett to work with the General Assembly to maximize Lottery revenues in-house.  Also, one Republican lawmaker plans legislation to authorize KENO while barring online, interactive Lottery games.

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Corbett Opts to Privatize Lottery Management

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Early Friday evening the Corbett administration announced its decision to hire a private sector manager to run the Pennsylvania Lottery.  The administration has been exploring the possibility for months, as a way to secure steady revenue growth for the programs that benefit PA’s senior citizens.  Ultimately it received one bid, from Camelot Global Services – the same company that runs the National Lottery in England.

The “notice of award” comes just days before the Senate Finance Committee is to convene a public hearing on the controversial issue.  Below you will find complete statements being issued by various stakeholders:

 

The Corbett Administration (Department of Revenue):

Harrisburg –– In the effort to secure critical, long-term funding for older Pennsylvanians, Secretary of Revenue Dan Meuser today announced the next step in the selection process for the the Private Manager of the Pennsylvania Lottery. 

The Commonwealth of Pennsylvania has issued a notice of award to Camelot Global Services PA, LLC, which provides for a 20-year Private Management Agreement.  A notice of award is not a binding contract. 

Under Pennsylvania procurement laws, the issuance of the notice of award allows the Corbett administration the opportunity to disclose contractual and procurement details of the Private Management Agreement at the Senate Finance Committee Hearing scheduled for January 14. 

With the issuance of this award, Secretary of Revenue Dan Meuser, Secretary of Aging Brian Duke and Pete Tartline, Executive Deputy Secretary, Governor’s Budget Office will be able to address all relevant contractual procurement questions at the hearing. 

The administration will gather information at the hearing and the near future will determine what is in the best interest for Pennsylvania seniors.

 

Camelot Global Services: 

“We are delighted the Commonwealth of Pennsylvania has issued a notice of award for the private management of the Pennsylvania Lottery. We know the state has placed enormous trust in giving us responsibility for its Lottery and we intend to work tirelessly to earn that trust. We are confident in our projections on growing responsibly the Pennsylvania Lottery over the next 20 years and guaranteeing the economic future for seniors programs. We are committed to make major investments in the lottery – in its brand, in its operations and in its people. We fully recognize that at the heart of any successful organization is its people. We intend to retain as many current lottery employees as possible and increase the number of employees in Pennsylvania overall.”

 

State Senate Democrats:

Harrisburg — January 11, 2012 — Senate Democrats today released statements expressing dismay and disgust at the actions of the Corbett Administration  in announcing the notice of award as it relates to the private management agreement, (PMA), for the Pennsylvania Lottery. 

“This is extremely disappointing and disturbing,” said Senator Jay Costa (D-Allegheny).  “The action taken by the Corbett Administration was done without public input.  Today’s decision has the potential to jeopardize senior programs and put taxpayers on the hook.”

“This has been a bizarre process that violates the public trust,” Costa continued.  “There were no hearings, little opportunity to understand the proposed PMA and no scrutiny. The process was violated and the citizens of Pennsylvania were abused by this arbitrary action.”

Senator John Blake (D- Lackawanna), Democratic Chairman of the Senate Finance Committee pointed out the proposal needs legislative authorization and it demands legislative scrutiny.

“The process was culminated when the General Assembly was not in session and there was little public examination of the proposal,” Blake said.  “This process wasn’t transparent — it was opaque. No one could see the end result except a small group of the governor’s inner circle.”

Expressing extreme disappointment on behalf of his constituents, Senator Rob Teplitz (D-Dauphin) said the use of a secretive process would lead to the privatization of a significant state asset and is unprecedented. “This is not a proper way to alter generations of public policy and violated the public trust.” 

“On a personal level, many of the affected employees are my constituents and have been treated with complete disregard,” Teplitz said.  “The arrogance of this administration in the way this was handled is deplorable.”

“I am extremely disappointed in this administration’s decision to jam this deal through at the last minute prior to a key Senate Finance Committee hearing,” said Senator Matt Smith (D-Allegheny).  “This shows a disturbing lack of transparency by the Corbett administration and hinders a meaningful dialogue regarding this multi-billion dollar deal. The Camelot plan certainly deserves a proper examination by the General Assembly and Pennsylvania taxpayers are entitled to further information.”

Senator John Wozniak (D-Cambria) echoed the sentiments of his colleagues related to the PMA.  “There are many questions related to how this privatization effort impacts seniors and property tax relief related to gaming.  The concerns of taxpayers should have been taken into consideration and questions answered before the governor took this action.”

 

AFSCME Council 13 (State Workers Union):

HARRISBURG – (JANUARY 11, 2013) AFSCME Council 13 will continue to oppose Gov. Tom Corbett’s plan 

to give away as much as $1.5 billion in PA lottery funds that could fund vital senior programs to Camelot

Global Services, the U.K.?based corporation that wants to take over the lottery.

Gov. Corbett signed a contract tonight after months of secretive negotiations with Camelot.

“It’s just incredible that the governor would ignore the General Assembly and the thousands of 

Pennsylvanians we’ve heard from who understand that this is a bad deal for our seniors,” said Dave

Fillman, Executive Director of AFSCME Council 13.

“This is a midnight raid. The governor rushed this deal through when the legislature was not in session.

He refuses to provide access to any of the documents that they’ve traded back and forth with Camelot

and he has refused to hold a single public hearing on this deal,” Fillman added.

AFSCME has provided a counter?proposal to the administration to modernize and expand the lottery 

that would provide $1.5 billion more for senior programs than Camelot would under its flawed plan. 

“Apparently, the governor wants to privatize something – anything – no matter the costs to 

Pennsylvanians,” Fillman said. “Our lottery is one of the best in the nation and this administration just

two weeks ago was congratulating our team for the great work they’re doing. Now, they’re telling 

people thanks, but we’re terminating your job.” 

AFSCME and seven Democratic lawmakers filed a lawsuit in Commonwealth Court to stop the governor 

from privatizing management of the lottery. Seniors who benefit from lottery programs and several

lottery employees also joined that litigation.

In addition, AFSCME is working with lawmakers in both parties to oppose Camelot’s proposal to change 

current state law to drastically reduce the Commonwealth’s annual commitment to lottery?funded 

programs. Current state law mandates that the state invest 27 percent of the Lottery Fund in senior 

programs annually. That minimum returns to its standard level of 30 percent on July 1, 2015.

But Camelot is betting that lawmakers will change that law and maintain the 27 percent floor for

the next 20 years, through 2033. This change alone would amount to a $1.244 billion loss to seniors if 

the same sales revenues are achieved without Camelot’s profit taking.

“For 42 years, the lottery has always gone well above the minimum because that’s the right thing to do,” 

Fillman said. “But under this deal, every $1 above that minimum goes to Camelot’s bottom line.”

Online Shoppers Should Pay Attention to Sales Tax

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“Cyber Monday” sales increased nearly 30% over last year, according to early reports from IBM Benchmark.  Many online retailers are now collecting and remitting Pennsylvania’s 6% statewide sales tax, but the Department of Revenue is still advising shoppers to save their receipts.

“The first thing to do is to check and see if sales tax was charged on the online purchase.  If it was charged, then the consumer doesn’t need to do anything,” explains Department of Revenue spokeswoman Elizabeth Brassell.

But if you don’t see sales tax on your purchase records, Brassell says it’s the responsibility of the consumer to report the “use tax” to the state when computing their 2012 tax returns. 

It appears that many more people are taking notice of the sales & use tax rules, as the state collected $3.8-million dollars in self-reported use tax last year via a new, simplified process on the PA-40 tax form.

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Online Retailers to Begin Collecting PA Sales Tax

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Pennsylvanians’ online shopping sprees won’t be tax-free for much longer.  Starting September 1st, online retailers with nexus – or a physical presence – in the state must collect and remit sales taxes.  In an interview with Radio PA, state Revenue Secretary Dan Meuser said they are simply enforcing the existing law. “The governor has pledged no new taxes.  The governor is not going to raise taxes.  However, we are going to administer and enforce the laws fairly on all taxpayers.”

Mueser says the enforcement effort is more about tax fairness than revenue generation, but he does estimate that it will result in an additional $55-million dollars in sales tax collections per year.

The strictly enforced system is intended to be fairer to Pennsylvania’s brick & mortar retailers.  “Those companies on Main Street tend to do most of the hiring and employment and living in our communities, so it’s simply not fair for us not to enforce the laws appropriately,” Meuser says.

Businesses were notified of the enforcement effort last December.  The original February compliance deadline was pushed back until September, and Meuser says there will be no more extensions.

While he declined to discuss specific companies, Meuser does expect former e-commerce companies, both large and small, to be collecting and remitting sales taxes as of September 1st.

Pennsylvania Lottery

PA Explores Private Lottery Management

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The Corbett administration is investigating whether privatizing lottery management will improve its ability to support programs for older Pennsylvanians.  The state’s senior citizen population is projected to grow by 20% over the next decade, and Revenue Secretary Dan Meuser says they want lottery revenues to do the same.

“Keep in mind, the state of Pennsylvania maintains all full control of this lottery,” Meuser tells Radio PA.  “We are not talking about at all selling the lottery.  We are bringing on a private consultant to help us meet the growth demands of the lottery.”

Revenue Secretary Dan Meuser

Revenue Secretary Dan Meuser

There’s no rush.  Requests for Qualifications went out in the spring, and Meuser says they are now in their “due diligence” phase of exploration.  “We’re not there yet,” Meuser explains.  “We’re not sure if a firm out there believes they can in fact do that, or if that firm can be acceptable to us.”

Private firms have expressed interest.  Meuser, however, cannot say which ones or even how many.  He tells us that could affect the competitiveness of the procurement process.  If they decide to proceed, invitations for bid could go out in the fall.

The trail for such private management agreements has already been blazed by the state of Illinois.  The Prairie State has just wrapped up its first fiscal year under private lottery management, and Illinois Lottery Superintendent Michael Jones believes it can work.  “I absolutely believe that the amount of money they promised the state is realizable,” Jones explains.  “With good marketing and good games and good prizes this will be a big success.”

Northstar Lottery Group promised Illinois $851-million dollars in profits during year one, and $951-million dollars in profits in year two.  Under the contract, Jones says, Northstar will receive significant bonuses if they hit those targets, and will have to pay the state penalties if they fall short.  Preliminary revenue numbers for Illinois’ first fiscal year under private lottery management are expected to be released in the near future.

Supporters call it a great way to generate new revenue without raising taxes.  “[Illinois] wouldn’t have done it if they weren’t going to get a billion dollars in extra revenue over the next five years,” says Reason Foundation director of government reform Leonard Gilroy.  “It wouldn’t have happened.”  Like Pennsylvania, Gilroy says states like Indiana and New Jersey are also seriously considering privatizing their lottery management.

Some members of the state House Democratic caucus are already speaking out against the issue in Pennsylvania, however.  “Why would we pay a company millions of dollars to do the same thing we could do ourselves – especially when those millions of dollars are badly needed for programs that help older Pennsylvanians?” asks Minority Leader Frank Dermody (D-Allegheny).

Secretary Meuser says the private entities’ proposals will help them make that call.  It’s something he says they’re taking very seriously. “The lottery funds will continue and only to go to benefit older Pennsylvanians and we are working now to secure that is the case, without question, today and ten years from now.”

Pennsylvania Lottery Turns 40

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The Pennsylvania Lottery is the only lottery in the nation that designates all of its proceeds to help senior citizens.  That’s what state officials are highlighting as they celebrate the Pennsylvania Lottery’s 40th anniversary.  “Since then we’ve been able to generate $21.5-billion dollars to fund programs for our older Pennsylvanians, and that’s something we’re very proud of,” says lottery executive director Todd Rucci. 

Some of the programs funded by the Pennsylvania Lottery include the Property Tax / Rent Rebate Program, PACE & PACENET and the 52 area agencies on aging.   “It’s very important to Pennsylvanians because the lottery supports older Pennsylvanians,” says Secretary of Aging Brian Duke.  He joined Todd Rucci to mark the anniversary at a Dauphin County senior center this week. 

During recent appropriations hearings officials told state lawmakers the lottery’s new strategic plan seeks to broaden the player base, in part by better explaining where the proceeds go. 

The new plan also means the retirement of ‘Gus,’ Pennsylvania’s 2nd most famous groundhog, and a longtime lottery spokes-animal.  “The robotic nature of Gus… added about $140,000 dollars to the production costs of a commercial,” Revenue Secretary Dan Meuser explained to the House Appropriations Committee.  “So we thought we’d save a little bit of money and put him out to pasture for a little while.”   

The Legislative Budget & Finance Committee recently took a comprehensive look at the Pennsylvania Lottery.  It noted a looming spike in the state’s senior citizen population compared to the modest growth that’s being projected for state lottery revenues.

online computer internet

Online Purchases Dominate Revenue Department Budget Hearing

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E-commerce has muddied the waters of an already complex tax code here in the Keystone State, and Revenue Secretary Dan Meuser did his best to clear things up during Appropriations Hearings on Tuesday. 

There’s some overlap between two big Department of Revenue priorities in 2012.  First, the state is compelling online retailers with a physical presence in PA to collect and remit sales taxes.  Pennsylvania consumers are also being encouraged to report the use tax that is due for online purchases when the sales tax is not collected. 

“We’re not interested in new taxes,” Secretary Meuser told the Senate Appropriations Committee.  “We’re about enforcing the laws that exist.”  Combined, the two initiatives are expected to add $49-million dollars to the state’s balance sheet. 

Online retailers have been given until September 1st to comply with state nexus laws, while line 25 on the PA-40 tax form will capture consumers’ attention this year.  It allows you to report your use taxes for all of those taxable items you may have bought online in 2012.  If you don’t have complete records of your purchases, the instructions even provide you with a table through which you can estimate the use tax that is due. 

Revenue Secretary Dan Meuser

Revenue Secretary Dan Meuser

For instance, a tax filer who made between $15,001 and $30,000 dollars in taxable income would pay an estimated $12 dollars in use tax (assuming they don’t live in Philadelphia or Allegheny counties, where the sales & use taxes are higher). 

“90% of people pay their taxes in a voluntary, compliant manner,” Meuser says.  “So our approach is aggressive education if you will, informing in many many ways.” He tells lawmakers that consumers’ self-reporting of use taxes is expected to account for $7-million of the $49-million dollar figure.

PA Clarifies Sales Tax Rules, Eyes Online Retailers

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Businesses are pouring over a new Tax Bulletin from the Pennsylvania Department of Revenue, which clarifies existing sales tax nexus law.  The law requires businesses with a physical presence in Pennsylvania to collect and remit sales taxes on items sold online, by phone or by catalog.  “Thousands of retailers and businesses that employ people throughout the state, and collect and remit 6% sales tax – 7% in Allegheny [County] and 8% in Philadelphia – felt that they were being treated unfairly,” explains Revenue Secretary Dan Meuser. 

The bulletin informs remote sellers, which have nexus in Pennsylvania, that they have until February to become licensed to collect sales tax.  Failure to do so could result in audits, liens or other enforcement measures. 

It could have a broad application across online-only retailers that have not been collecting and remitting state sales taxes, according to Dan Hayward with the Pennsylvania Alliance for Main Street Fairness.  The Pennsylvania Retailers’ Association joins Hayward in calling it a great first step toward equity and fairness.  “Pennsylvania’s retailers, and the more than 600,000 jobs they have created, deserve fairness and a level playing field with their Internet competition,” says PRA President & CEO Brian Rider.

Testifying before the House Finance Committee in May, the Department of Revenue estimated that PA is missing out on $350-million dollars a year because online retailers aren’t collecting sales taxes. 

But just because state sales tax isn’t collected on many online purchases, it doesn’t mean taxes aren’t due.  Beginning in January the state will provide a line, on Pennsylvania personal income tax returns, which allows individuals to self-report their use tax.  Use tax rates are identical to the sales tax; they’re due when consumers make taxable purchases for which no sales tax is collected.

Sate Capitol View from Commonwealth Ave.

Q1 State Revenues Miss the Mark

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The first quarter of the state’s fiscal year is in the books, and the numbers tell the tale of a flagging economy.  “All the major tax categories were below estimate for the month, so clearly the economic conditions are having an impact on tax collections,” says state Revenue Department spokeswoman Elizabeth Brassell, while discussing the latest revenue report.

September’s General Fund collections were $151.8-million (6.1%) below estimate, which means state revenues are now $215-million (3.5%) below projection for the fiscal year-to-date.  Sales taxes have come in 1.4% below estimate, personal income taxes are 4% off the mark, and corporation taxes are nearly 13% less than anticipated so far this fiscal year. 

Gov. Tom Corbett talks to the media at the state capitol.

Governor Tom Corbett says he’s watching the situation closely and is paying particular attention to the month of October.  “We kept aside $700-million.  Our goal was to go into next year with $500-million on hand, you’d kind of like to have money on hand going into it,” Corbett said during a question and answer session with the media on Wednesday. 

The $700-million that Corbett refers to was the unallocated revenues remaining at the end of FY2011.  Corbett continues to stress that was not a surplus.  “If the revenue decline isn’t indicative of that, I don’t know what else is.”

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Another Good Revenue Month for PA

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May’s tax receipts have been tallied, and the Department of Revenue reports that collections exceeded estimates by nearly $34-million, or 1.9%.  That means Pennsylvania’s revenues are outpacing estimates by a total of $539-million through 11-months of the fiscal year.  “It just points out once again how bad the Republican budget that was passed last month actually is,” says Bill Patton, a spokesman for House Democratic Leader Frank Dermody (D-Allegheny).  A GOP-backed, $27.3-billion dollar budget bill passed the House last month with zero Democratic support.  It would not have used any of the current fiscal year’s excess revenue.  “We should use a good bit of this surplus revenue to restore cuts that were made in the House Republican budget, and we think we can do that in the month of June,” Patton tells us. 

The notion of tapping into that money is a bipartisan one over in the Senate.  “We have proposed using some of the revenue surplus that exists to help soften the impact of cuts in the education area, cuts to hospitals,” says Senate Republican spokesman Erik Arneson.  “This gives us continued reason to think that it can be done in a fiscally responsible way.”  However, Arneson cautions that while the economy appears to be recovering, there are still “some serious soft spots.” 

Looking at how the state’s major revenue sources fared in May:  sales taxes and corporation tax receipts were above estimate.  Personal income tax revenue was below estimate for the month, but still 2.1% above estimate for the fiscal-year-to-date.  In an email to his colleagues, Wednesday, House Democratic Appropriations Chair Joe Markosek (D-Allegheny/Westmoreland) pointed out that May is one of the smallest revenue collection months.  He suggests that further surplus could be posted in June, which is a more significant month for state revenues.  Both the House and Senate are in recess until June 6th, but state budget matters will get top billing between then and the June 30th budget deadline.