The Oregon Lottery director said Monday that she plans to rework her controversial proposal to cut bar and tavern owners' video poker compensation.
Director Brenda Rocklin's initial proposal turned out to yield far less revenue for state-funded programs than first estimated, prompting calls from education advocates and others for more drastic reductions in the share of video poker proceeds that bars and taverns are allowed to keep as compensation.
But bars, taverns and restaurants and their trade association used Monday's public hearing to keep up pressure on the lottery's commission to maintain current compensation rates.
Rocklin did not say how much she intended to amend her earlier proposal, which called for the commission rates to fall by 5 percentage points over six years.
Currently, retailers receive 35 percent on the first $200,000 of sales. As net proceeds climb, the rate drops to 30 percent for more than $200,000, 25 percent for more than $400,000 and 20 percent for more than $600,000.
Rocklin's initial proposal called for the rates to fall to 30 percent on the first $200,000, then to 25 percent at $200,000 or more, 20 percent at $400,000 or more and 15 percent at $500,000 or more.
When Rocklin's initial recommendation came out in late February, lottery officials claimed that it dventually would generate an additional $49 million for the state. However, independent analyses by The Register-Guard and Portland economist Joe Cortright both found that it would increase state revenue only by about $26 million a year.
Lottery officials responded by saying their calculations had been based on rough estimates.
Documents obtained by The Register-Guard under the Oregon public records law showed that the lottery had previously considered reducing compensation rates more dramatically than Rocklin's initial proposal.
According to the documents, lottery staff had studied five variations on the tiered approach. The idea was to provide a greater level of income to the smaller operations, but to give the state a larger share of the take from the high-volume contractors.
The five scenarios would have yielded increased revenue to the state ranging from $37.4 million to $64.9 million, according to lottery documents.
Rocklin chose to recommend the one in the middle, which was projected to generate $49 million more.
Portland activist Steve Novick said he was disappointed to learn the lottery's staff had considered but rejected rate changes that would have meant more money for state-funded programs such as education.
"If they made projections that showed lower rates would bring in more money, why did they not propose those lower rates?" he asked. "Did they make a deliberate decision to disobey the law?"
Both sides of the debate expressed growing frustration with the lottery's approach to balancing its dual mandate under state statute: to ensure that it "maximizes revenue to the state" while also "providing a reasonable rate of return for contractors."
Steve Gilbert, co-owner of Strike City and the Game Day sports bar, both on Highway 99 in Eugene, told lottery commissioners at Monday's public hearing that it was impossible to tell how the agency considered the new compensation proposal to be a "reasonable rate of return."
"What is the formula? What is the powerful factor that causes the reasonable standard to always slide to the benefit of the lottery?" he asked.
With the sluggish down economy, rising insurance and labor costs, and other increasing expenses for video lottery retailers such as himself, Gilbert said it was difficult to see how a reasonable rate of return could be less generous than the current rate.
Asked how she squared her recommendation with the "reasonable rate of return" requirement as well as the "maximizes revenue" dual mandates, Rocklin said it was a difficult balancing act -- especially since video lottery retailers have grown accustomed to their current compensation levels.
Rocklin noted that retailers' average compensation rates started at 35 percent in 1992 and on average have dropped to 32 percent since then. They would gradually drop to about 27 percent under her initial proposal. Their average commissions, currently $74,000, would fall to about $61,000.
"There's this 12-year history," she said adding that if there is a "reasonable rate of return as a certain percentage, I'm not sure you can get there overnight."
Rocklin said she also took into account retailers' warnings of reduced operating hours and other arguments and studies by economists.
"I really tried to factor in all of those things in coming up with what I thought was reasonable," she said.
A report commissioned by the lottery and released last month found that the reasonable rate of return necessary to provide lottery retailers with a 15 percent profit on their out-of-pocket costs came to between $8,000 and $10,000. Currently, the average commission is $74,000 a year for each retailer.
The Oregon Restaurant Association, which criticized that study, issued one of its own on Monday. Its consultant, Growth Strategies Northwest of Lake Oswego, issued an analysis Monday of a survey of 140 video lottery retailers.
Economist Murphy McGrew concluded that if at least 39 percent of retailers reduce operational hours -- something 59 percent of those surveyed indicated would happen -- the state's increased take from lowered compensation rates would more than be offset by a lower volume of sales.