Seeking to nullify a major complaint about expanded gaming, Massachusetts Governor Deval L. Patrick is pledging to protect state Lottery revenues from being ravaged by casinos.
As part of his proposal to establish three casino resorts, including one in Western Massachusetts, Patrick said he will "hold harmless" the state Lottery, a major source of state aid to cities and towns.
The governor said he would cover any loss in lottery revenues with money from a proposed annual 27 percent tax on gaming revenues.
Municipal leaders have long said that they feared casinos would take money from the state Lottery.
"It's very important they protect the lottery," Agawam Mayor Richard A. Cohen said yesterday. "That's money cities and towns have come to count on."
Backed by findings from a 2003 study commissioned by the state Lottery, Patrick said he expects up to 4 percent dip in lottery revenues during each of the first three to five years of operation of casinos. The governor said lottery sales tend to rebound after the early hits to their revenues from casinos.
He said he expects to raise about $400 to $450 million a year in net tax revenues after deducting for the money to protect the lottery and other expenses such as money for treatment of compulsive gamblers.
Patrick said the casinos could also sell lottery tickets.
In legislation to legalize casinos that he is expected to file in a couple of weeks, Patrick will insert provisions to shield the lottery from losses, a spokeswoman said yesterday.
Easthampton Mayor Michael A. Tautznik said yesterday he is neutral on casinos but the "principal concern" is the possible impact on lottery revenues.
Tautznik said that if casinos are approved, the state should do more than just guarantee that lottery revenues would be flat.
"What does hold harmless mean?" Tautznik said. "That becomes a question. I think we are all guessing."
If casinos hurt lottery sales, that would have an impact on stores that sell lottery tickets.
Patrick D. Murphy, owner of Murphy's Pop Stop, a convenience store and restaurant in Springfield, said he would be concerned about the effects of casinos on his lottery sales.
Lottery agents earn a 5 percent commission on sales and 1 percent bonus on prizes claimed. Murphy said his lottery sales are about $6 to $7 million a year.
"It's my whole business," he said. "Pretty much, it's the only thing that keeps me alive."
Rep. Daniel E. Bosley, D-North Adams, co-chairman of a legislative committee that oversees gambling bills, said yesterday that Patrick is underestimating the effects of casinos on lottery sales.
Bosley said municipal officials should be concerned.
"You're going to get a tremendous hit to the bottom line of the lottery," he said.
A study last year by the House Committee on Economic Development found that net lottery sales could drop by 15 percent over two years if casinos are approved.
Bosley said the state lottery is already returning more money to government than the two casinos in Connecticut.
The state lottery this fiscal year will return $935 million in aid to cities and towns, up $15 million, or 1.6 percent.
The casinos in Connecticut last year provided $427 million for state government and the lottery in Connecticut generated an additional $285 million for the state.
In estimating the effects on the lottery, Patrick is relying on a 2003 report for the lottery by Christiansen Capital Advisors in New York.
The state's Commission to Study the Potential Expansion of Legalizing Gaming recommended in 2002 that the state consider "a hold harmless provision" for aid from the lottery if casinos are approved.
But the details could be complex, the commission said.
"For example, should gambling taxes-revenue sharing be used to guarantee cities and towns aid equal to the prior years?" the report concluded. "Or should they instead be guaranteed some rate of increase that seeks to approximate what they would have received absent the introduction of casinos or slot machines? If so, how should the rate of increase be determined? Should it grow with inflation or at a set rate ... or at a rate that tracks lottery growth elsewhere in the nation?"
Supporters of casinos said that lottery sales are stagnant and new gambling revenues are needed to help finance government services.
The lottery, created by state legislators in 1971, experienced declining revenues last fiscal year for only the second time in its history, a spokesman for the Lottery said yesterday.
In the fiscal year that ended June 30, gross sales from the lottery were $4.460 billion, down from $4.524 billion in the prior fiscal year. The spokesman said sales dropped because there was only one unusually big jackpot in the 12-state "mega millions" game in the fiscal year that ended June 30.
A backer of establishing casinos, Sen. Michael R. Knapik, R-Westfield, said yesterday that Patrick is making a good move in pledging to protect the lottery from losses. By doing that, the governor might remove a key objection to casinos, Knapik said.
Patrick wants to use annual tax revenues from the three proposed casinos to finance road and bridge construction and to create a tax credit for reducing property taxes. Knapik said he would support using some of that tax money on state aid to cities and towns.
"Cities and towns are going to look for a source of revenue ... that is reliable and growing," he said.