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Cratering lottery revenue is bad luck for NJ state worker pensions

Apr 27, 2020, 10:39 am

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New Jersey LotteryNew Jersey Lottery: Cratering lottery revenue is bad luck for NJ state worker pensionsRating:

There's a new cause for concern about New Jersey's chronically underfunded public-worker pension funds — sagging state Lottery revenues.

That's something of a double whammy for one of the nation's worst-funded state retirement systems, which has seen investment returns plummet precipitously during the coronavirus pandemic.

So far this fiscal year, Lottery revenues, which serve as a dedicated source of funding for the pension system, are down more than 12% compared with the same period last year, according to the latest data released by the Department of Treasury.

During the month of March, the year-over-year revenue drop-off was even more dramatic, reaching nearly 30%.

While there's still time to make up ground, any rally would have to occur as economic activity across the state has been sputtering amid the strict social-distancing measures enacted by Gov. Phil Murphy in response to the pandemic.

Lottery losses put squeeze on state budget

Adding to the dilemma is the way that Lottery funds have been used in recent years as part of a broader plan to shore up state pension contributions that have for years been shorted in the annual budget. That plan worked well when the economy was booming, but in a downturn, Lottery revenue shortfalls put more pressure back on the state budget even as it, too, is being strained by the ongoing pandemic.

There is one potential benefit if the sag persists: The company that has been handling sales and marketing duties for the Lottery under a long-term privatization deal may not be able to earn year-end performance bonuses this year.

New Jersey began dedicating revenues from the state Lottery to the pension system in 2017 under a reform that was enacted by then-Gov. Chris Christie.

A two-term Republican, Christie frequently highlighted the state's pension-funding problems, but he also never made a full employer contribution as calculated by the state's actuaries. In fact, during his first full year in office, Christie made no state pension contribution at all as New Jersey was still in the throes of the Great Recession.

To help make up some of the ground, Christie's 2017 reform carved out monthly revenues from the Lottery as an automatic and dedicated source of state funding for the pension system. The setup assumes at least $1 billion in annual revenue can go directly into the pension funds from the Lottery, thus easing how much has to come out of the annual budget.

But the new system of funding was set up during the long expansion from the Great Recession, and as the Lottery system was adding new games that helped drive growth. It is now facing a stiff test amid the economic slowdown that's been caused by the coronavirus, which has hit New Jersey particularly hard.

Lottery revenues go through the floor

Through the first nine months of fiscal year 2020, Lottery revenues have totaled $707.8 million, according to Treasury's latest revenue data. That's off the pace of the prior fiscal year by nearly $100 million. And for the month of March 2020, Lottery revenues totaled just $78.2 million, or 27% less than was collected in March 2019.

Treasury officials have acknowledged that many of the retailers the state relies on to sell Lottery tickets are experiencing reduced foot traffic amid the pandemic, and it's too soon to say when economic activity could get back to normal.

"For the first two weeks of March, average daily sales were over $10 million per day, but for the last two weeks of March, average daily sales were closer to $7 million per day," said Treasury spokeswoman Jennifer Sciortino.

"Based on reduced foot traffic to retailers and tighter activity restrictions, a greater drop in sales is possible," she went on to say.

While Murphy has consistently been ramping up state pension contributions since he took office in early 2018, those payments have yet to reach the full amount calculated by actuaries, and an unfunded pension liability that measures well over $100 billion has persisted.

Since Treasury assumes roughly $1 billion in annual revenues will come from the Lottery to help prop up the pension funds, any shortfall in fiscal year 2020 would either mean more funding will have to come out of the state budget or the huge unfunded liability will grow even bigger on paper.

"If the lottery contribution is less than anticipated, it may increase the unfunded actuarial accrued liability (UAAL) in subsequent years, unless the state makes up the difference," Sciortino said.

June pension-payment deadline

Even though Murphy recently enacted legislation that extended the current fiscal year by three months, the state's next quarterly pension contribution is due to be made at the end of June. The size of the last quarterly payment — which the state was able to make at the end of March — was $684 million, Treasury officials said.

A plan to contribute almost $300 million more to the pension system by the end of June has already been scrapped amid the pandemic, and Treasury has also frozen nearly $1 billion in additional fiscal 2020 spending.

As the preparations were being made to extend the state fiscal year, credit analysts had already suggested they would be watching what happens in New Jersey  — including upcoming pension contributions — very closely. The size of the state's long-term liabilities was also mentioned in a downgrade of its rating outlook that was issued last week by Moody's Investors Service.

But even as the length of the state fiscal year has changed, Treasury officials are taking the position that their contract with the private company that handles Lottery marketing and sales duties, Northstar New Jersey, only provides performance bonuses for revenue that is generated during a 12-month "contract year." That eases some concern that the extension of the fiscal year could have given the company a longer term to meet its bonuses, which have cost the state $30 million or more in some recent years.

"The contract year is explicitly defined in the agreement as July 1 through June 30," Sciortino said.

Under the latest version of the contract — which was amended by the Murphy administration last year, Northstar's "net income" target for qualifying for a full-performance bonus during the 2020 "contract year" is nearly $1.1 billion, meaning it still has a ways to go.

A representative of Northstar New Jersey could not be reached for comment for this story.

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9 comments. Last comment 1 month ago by Philo Farsnwort.
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Raven62's avatar - binary
25
New Jersey
United States
Member #17842
June 28, 2005
123700 Posts
Offline
Posted: April 27, 2020, 10:58 am - IP Logged

"Oh what a tangled web we weave, When first we practice to deceive"!

A quotation by Sir Walter Scott

A mind once stretched by a new idea never returns to its original dimensions!

Catch-22: A dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

Corruptissima re publica plurimae leges: When the republic is at its most corrupt the laws are most numerous.

    Avatar
    Chasing $ Millions.
    White Shores- California
    United States
    Member #136473
    December 12, 2012
    6147 Posts
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    Posted: April 27, 2020, 12:01 pm - IP Logged

    At least NJ is getting the message out there. Help is needed all round.

     * Voice of Reason *   

     

    People who say it cannot be done should not interrupt those who are doing it- George Bernard Shaw.

      dpoly1's avatar - driver
      PA
      United States
      Member #66139
      October 16, 2008
      1977 Posts
      Offline
      Posted: April 27, 2020, 1:07 pm - IP Logged

      Defined pensions are totally unsustainable!

      dpoly1 - Playing the lottery to save the jobs of those that build, transport, sell & maintain luxury items! -

       

      Eschew Poverty ........... Vote Conservative!

        Coin Toss's avatar - shape barbed.jpg
        100
        Zeta Reticuli Star System
        United States
        Member #30469
        January 17, 2006
        11475 Posts
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        Posted: April 27, 2020, 2:19 pm - IP Logged

        Makes one wonder how they funded it before the lottery was approved.

        Just a thought.

        Of course no one could see this coming (?? well...) but still governments shouldn't let themselves rely on something that can be clobbered like this.

        Those who run the lotteries love it when players look for consistency in something that's designed not to have any. So many systems, so many theories, so few jackpot winners. 

        Lep

        There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

          Avatar
          New Member

          United States
          Member #205225
          March 19, 2020
          10 Posts
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          Posted: April 27, 2020, 4:36 pm - IP Logged

          New Jersey lottery proceeds go to a pension fund?  In Michigan lottery money goes to the schools.

            Avatar
            New Member

            United States
            Member #205573
            April 3, 2020
            3 Posts
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            Posted: April 28, 2020, 1:40 pm - IP Logged

            Yes, lottery funds in New Jersey help the pension fund and also pay for the private company that has been running the lottery for the last few years, both enacted by former Gov. Christie. The private company's mandate was to increase lottery funding through new games, etc., but of course that mean creating new ways that players can lose more money. One thing that didn't workout is the Five Card Cash game, a poker draw game, which the Lottery Commission voted to suspend at its recent April meeting. The executive director cited its relatively low sales, but said the decision to suspend it soon is pandemic-related because it takes two workers to oversee it and eliminating the game would help with the company's COVID-19 social distancing mandates. Seems just a pre-text. There is a large progressive jackpot associated with the game. Wonder what will happen to that?

              Stat$talker's avatar - animated sphere.gif
              700 light yrs West of Milky Way Galaxy's Center
              United States
              Member #200645
              September 1, 2019
              507 Posts
              Offline
              Posted: April 28, 2020, 3:10 pm - IP Logged

              Yes, lottery funds in New Jersey help the pension fund and also pay for the private company that has been running the lottery for the last few years, both enacted by former Gov. Christie. The private company's mandate was to increase lottery funding through new games, etc., but of course that mean creating new ways that players can lose more money. One thing that didn't workout is the Five Card Cash game, a poker draw game, which the Lottery Commission voted to suspend at its recent April meeting. The executive director cited its relatively low sales, but said the decision to suspend it soon is pandemic-related because it takes two workers to oversee it and eliminating the game would help with the company's COVID-19 social distancing mandates. Seems just a pre-text. There is a large progressive jackpot associated with the game. Wonder what will happen to that?

              Fmr Gov. Christie tied up Bridge traffic during rush hr to punish voters than didn't support his election...

              The current Gov may hold the Jackpots hostage til they get enough revenue..!

              NJ is a small State,.. so they have to come up with BIG ideas...!!, or should I say "deeper" ideas!,.. as in deeeep into player's pockets..

              ...MATH... The final Stochastic frontier...

              These are the Lottery Voyages of Stat$talker..!!

              The ongoing Mission,..to seek out the Laws of "Probability Math"...

               to master its rules to invoke...to Conquer ALL Major Jackpots..!!

              ...To boldly go,... Where NO Player has gone before...!!

                Coin Toss's avatar - shape barbed.jpg
                100
                Zeta Reticuli Star System
                United States
                Member #30469
                January 17, 2006
                11475 Posts
                Offline
                Posted: April 29, 2020, 3:00 pm - IP Logged

                Fmr Gov. Christie tied up Bridge traffic during rush hr to punish voters than didn't support his election...

                The current Gov may hold the Jackpots hostage til they get enough revenue..!

                NJ is a small State,.. so they have to come up with BIG ideas...!!, or should I say "deeper" ideas!,.. as in deeeep into player's pockets..

                It may be a small state but it's the most densely populated.

                Those who run the lotteries love it when players look for consistency in something that's designed not to have any. So many systems, so many theories, so few jackpot winners. 

                Lep

                There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                  Avatar
                  New Member
                  Nyc
                  United States
                  Member #171476
                  January 9, 2016
                  1 Posts
                  Offline
                  Posted: May 2, 2020, 1:02 am - IP Logged

                  Yes, lottery funds in New Jersey help the pension fund and also pay for the private company that has been running the lottery for the last few years, both enacted by former Gov. Christie. The private company's mandate was to increase lottery funding through new games, etc., but of course that mean creating new ways that players can lose more money. One thing that didn't workout is the Five Card Cash game, a poker draw game, which the Lottery Commission voted to suspend at its recent April meeting. The executive director cited its relatively low sales, but said the decision to suspend it soon is pandemic-related because it takes two workers to oversee it and eliminating the game would help with the company's COVID-19 social distancing mandates. Seems just a pre-text. There is a large progressive jackpot associated with the game. Wonder what will happen to that?

                  When power play was created it helped states recoup income from the games Texas got a dollar for each game with a power play maybe this governor could insist on extra piece of the pie a -corona virus tax for pension - unles the contract does not allow but this emergency should void all contracts I think ?!