Alaska Governor Introduces Bill to Create State Lottery

Friday February 14th 2020

Gov. Mike Dunleavy has introduced legislation to create a lottery in Alaska next year as he seeks to plug a $1.5 billion hole in the state's budget. A lottery plus other gaming could generate revenue of $100 million per year.

"Alaska is one of only five states that does not have any form of a state lottery. I believe it is time we, as a state, have the conversation on the potential benefits that could come from a state lottery," the governor said in a statement.

The governor wants to create an independent public corporation, the Alaska Lottery Corporation, to determine what kinds of gaming to offer in the state. Options include a draw-style lottery with in-state games, multi-state games like Powerball and Mega Millions, as well as scratch-off tickets, keno, video lottery terminals, and sports betting. The lottery could only be played by Alaskans age 18 and above.

Dunleavy's bill states that "the corporation may conduct any type or kind of lottery game, including single-jurisdiction and multi-jurisdiction draw games, instant tickets, sports betting, and keno. The corporation may conduct lottery games through the use of any media, including electronic terminals, computers, and the Internet." The corporation would hire contractors to run lottery programs.

The governor himself would not make the decision about what types of gambling to introduce. The proposed Alaska Lottery Corporation would make that decision. However, he would appoint the seven members of the board of directors, who would write regulations to set up the lottery.

Another lottery bill has also been introduced by Rep. Steve Thompson, Republican of Fairbanks. His legislation is more limited and only proposes numbered lottery draw games or joining multi-state games like Powerball and Mega Millions. Thompson says he is reserving judgment on the governor's bill.

Lottery could contribute to deficit reduction

In the past, Alaska didn't feel the need for a lottery because its oil-rich economy benefitted from high oil prices. However, with falling production and lower prices, the state now has a persistent budget deficit currently estimated at $1.5 billion.

The last lottery bill was introduced in 2003 and also proposed funding for education - but never even made it to the floor to be voted on. More recently, former Anchorage mayor Dan Sullivan has been trying to persuade legislators to back a lottery.

"Aside from creating a pathway that could lead to business opportunities, the purpose of the bill is to generate new revenues for the state," the governor said.

"In an era of declining state revenues, it is imperative for Alaska to consider new ways of funding government services that satisfy the public health and welfare needs of our citizens."

What would lottery funds be spent on?

The governor wants to use lottery revenue for education "and to support public health and welfare programs" that include services to combat domestic violence, drug abuse, and homelessness, support seniors, and improve the foster care system.

However, Alaska's Constitution does not allow dedicated funds, so in the future there's no guarantee the money would be earmarked for these purposes.

Thompson's proposal doesn't specify how lottery money would be spent.

Concerns over lottery proposals

Some games, including bingo and pull-tabs, are already legal in Alaska under charitable gaming licenses. Operators generated proceeds of $340 million in 2014, of which the state collected $2.5 million in taxes.

Sandy Powers, President of the Alaska Charitable Gaming Alliance (ACGA), wants to ensure a lottery wouldn't threaten revenue for nonprofit organizations that benefit from gaming dollars. "I don't think it's a good idea to do one at the expense of the other," Powers said.

The government says questions on the possible effects of a lottery on charitable gaming revenue would be addressed in legislative hearings.

The lottery "still doesn't solve Alaska's fundamental fiscal problem," argues Juneau Democrat Sen. Jesse Kiehl. He wants changes to the state's oil tax structure and a broad-based tax, such as an income tax. Alaska has no personal income or state sales taxes.

Gaming could generate over $100 million

Estimates for how much money the lottery could generate depend on which games it offers.

A Department of Revenue official estimated that the governor's full plan would generate around $100 million, while Thompson's lottery-only plan would produce $8 to $10 million.

At the lower end of revenue forecasts, lottery draw games could bring in $5 to $10 million. Instant games, like scratch-offs, could add an extra $30 to $40 million. And with video lottery terminals, total revenue could be above $100 million.

The governor is enthusiastic about his proposal as a means to create business growth for small retailers, but so far officials do not have specific numbers on how big an opportunity a lottery could be for small businesses.

Lottery would launch next year

Under the governor's plan, the lottery would launch in 2021. Officials estimate it would cost $3 million to set up.

It would break even in 2022, and start generating revenue for the state in 2023.

"It is reasonable to assume that sales could begin in year two and that a lottery with instant and draw games could be fully operational by the third year after passage, with transfers to the state coming in that year," according to a Department of Revenue analysis.

Currently, both bills have been referred to the House State Affairs Committee. Dunleavy's plan will also be analyzed by the Senate State Affairs Committee.

Education Raffle a sign Alaskans are ready for a lottery?

On January 28, residents got a taste of what a lottery might be like when the first winners in a new statewide raffle were drawn. Unlike a lottery, it's possible for a raffle not to have winners.

The first Permanent Fund Dividend Education Raffle raised approximately $870,000. Half of that will be contributed to K-12 schools, and another 25 percent goes to a new education endowment fund. The remaining money goes to the raffle fund. The raffle fund provided this year's prize money and the rest goes to increase next year's prize amounts.

Four winners were randomly drawn from 8,698 entries at the Harborview Elementary School in Juneau. The first prize of $17,396 was claimed by James Johnson. The second prize of $8,698 was won by Joshua Foster. The third prize of $4,349 was scooped by Dantasia James, and Laura Hayes took home the fourth prize of $2,174.50.

Alaskans were given the option to purchase raffle entries from their Permanent Fund dividend (PFD), an annual cash payment the state makes to residents. A portion of Alaska's oil industry revenue is invested by the Alaska Permanent Fund every year, enabling the PFD payments.

Sen. Click Bishop, who introduced the raffle bill, said the amount of money raised exceeded his expectations. "I'm blown away," he said. "I was hoping and praying we would at least generate $250,000 in our first year." He expects participation to rise in future raffles.

The success of the PFD Education Raffle could be an indication that Alaskans would also support a lottery that benefits education.

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