Sources of Revenue:

Special Fund

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

House Bill 4538 would amend W.Va. Code §29-22B-1408. This is the part of the Limited Video Lottery Act where the profits from limited video lottery gaming are divided among the State, local governments and licensees. Beginning on July 1, 2006 after the state/local rate has been determined according to formula, but before it is applied to gross profit in subsection (b), the bill would set aside 8% of gross profit an amount payable to limited video lottery retailer licensees. The effect of the additional 8% for retailer licensees is that at the end of the process in subsection (c) there is 8% less for distribution to operators and retailers. The Act requires that when a licensed operator contracts with a licensed retailer for the placement of video lottery terminals in the retailer’s location, the split between these two parties can never be more than 50% for the retailer and never less than 40% for the retailer. Most contracts are 50%-50%.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2006 Increase/Decrease (use"-")	2007 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	-6,200,000	-6,200,000

Explanation of above estimates (including long-range effect):

In subdivision (a)(1), the Lottery Commission gets 2% of “gross terminal income” to pay administrative expenses of the state. The remaining funds are then labeled as “gross profits” and subsequent percentage rates are applied to this new 100%. The State and local combined rate is now 46%, leaving 54% for the operator and retailer ["the parties"]to divide. [For 50/50 contracts, this would mean each party gets 27%.] The change in this bill would leave only 46% to divide between operator and retailer. [For 50/50 contracts, this would mean each party gets 23%.] The end result would mean a retailer would get a total of 31% (+8% and –4% = +4%), and the operator would lose 4%. This value shift from operators to retailers is approximately $12.4 million, based on FY 2005 numbers. Also in subsection (b), the bill changes the rate allocable to county and municipal governments from 2% to 4%. Based on the results of fiscal year 2005, the State’s share would decline by $6.2 million, and the county-and-municipality share would increase by $6.2 million.

Memorandum

There is a technical error in the original Limited Video Lottery Act that could be corrected here. In W.Va. Code §29-22B-1408(b)(1)(A) and (B), the term “net terminal income” appears three different places. This should have been the term “gross profit” in each case. Also, W.Va. Code §29-22B-1408(c) should be amended to read as follows: The licensed operators and limited video lottery retailers shall receive the balance of gross terminal income profits remaining after deduction of the state’s and retailers share net terminal income as calculated pursuant to this section.

Person submitting Fiscal Note: John Melton
Email Address: jmelton@wvlottery.com