Oregon Gov. Ted Kulongoski has become a quiet backroom force in pushing the Oregon Lottery into considering a nearly 50 percent cut in the share of proceeds that bars, restaurants and taverns receive for the lottery's new electronic slot games.
People close to Kulongoski say he has become more involved than previous governors in determining how much money retailers should get for offering video gambling, which last year totaled $531 million in sales.
Kulongoski prodded the new lottery director, Dale Penn, to propose that retailers get a 15 percent share of sales from the slot games, which will be introduced in July. Retailers currently get an average commission of about 29 percent for video poker games, which are expected to fade quickly in popularity once the new games begin.
Leaders of the Oregon Restaurant Association, which represents many of the 2,000 video lottery outlets, say they're disappointed the governor has gotten involved. The push to slash commission rates could depress sales and cost the state money, they say.
"If in fact the governor has intervened, that is unfortunate," said Michael McCallum, the group's president, "because the folks who are the most informed should be the ones making the decision."
But Steve Novick, a longtime critic of lottery rates, said he was pleased Kulongoski was getting involved. At some point, the governor "must have realized the state was giving away lots of money," said Novick, a veteran Democratic activist who has assisted the Oregon School Employees Association in a lawsuit claiming the state is not following a law requiring it to maximize lottery returns.
The Democratic governor's push for a hard bargain with the politically powerful retailers could reap millions of dollars for schools and other government programs. That could help him win support from school advocates who have become increasingly vociferous in contending that retailers get an overly generous deal from the state.
The Lottery Commission has set new rates three times since video poker began in 1992. Kulongoski's two predecessors, John Kitzhaber and Barbara Roberts, generally focused on other gambling issues and didn't get involved in rates. Kulongoski also largely stayed out of it when the commission reduced rates by about 10 percent last year.
His involvement in setting the new rates was described to The Oregonian in interviews with six people knowledgeable about the deliberations.
The governor was not available for comment Friday, but his chief of staff, Theresa McHugh, said Kulongoski has made it clear in discussions with Penn and lottery commissioners what he wanted.
"He wants the lottery to take an aggressive negotiating approach," McHugh said. "He wants them to make sure they are getting as much revenue as makes sense for (public) services."
Two sources close to the governor, who spoke only on condition their names were not used, went further. They said Kulongoski prodded a reluctant Penn -- whom the governor appointed in October -- to propose a 15 percent rate as an opening position in bargaining.
One of the lottery commissioners, Stan Robson, said he had not talked to Kulongoski. But he said he had heard that the governor's advice to Penn "was that we start at 15 percent. . . . I think (Penn) has to go along with that. It is his boss."
Penn said Kulongoski told him that he wanted the lottery "to do whatever we could to increase revenues for state services." Penn would not say if the governor told him to propose a 15 percent rate.
When Penn met retailers Jan. 11 to talk about the new slot games, he floated the idea of a 25.6 percent rate that would cover both video poker and the slot games.
Penn then spoke with Kulongoski several times, including during a Feb. 10 meeting that was attended by two lottery commissioners, Kerry Tymchuk and Steven Ungar, plus McHugh.
Five days later, Penn formally proposed that retailers keep the same rates for video poker but get 15 percent for slot games. He said he was proposing a much lower rate because he found out the lottery could refigure its computers to track how often each kind of game was being played on the state's 10,300 electronic gambling terminals.
But McCallum, of the restaurant association, said the ability to track the different games shouldn't lead Penn to drastically change his thinking on rates because the majority of players are expected to quickly switch from playing video poker to playing slots. Those games, which feature more enticing graphics, are vastly more popular in the nine tribal casinos.
After public hearings later this month, Penn is expected to make a final recommendation to the commission, which will approve a new rate structure on or after April 7. Robson said that the 15 percent rate was unrealistic and that he expected the final rate to be higher.
McHugh said Kulongoski understands "that this was a negotiation" and that he expected the commission to do its own examination of the rate structure.
But the governor might weigh in again, she said, noting that Kulongoski has told not just the lottery but a wide range of state agencies that they must be more accountable and not continue a "business as usual" attitude.
"He's going to watch their process," she said, "and if he feels it is appropriate to clarify his position, he will do that."
Lottery retailers typically get only 5%-6% of ticket sales.