Lottery earnings expected to decline

$17m reduction forecast in '08 as economy sputters

Treasurer Timothy P. Cahill said he will cut the state lottery's budget by $3 million, avoiding layoffs but trimming costs. (JONATHAN WIGGS/GLOBE STAFF/FILE 2008)

The state is bracing for a 1.5 percent drop in lottery revenues this year, another troubling result of the economic crisis that could erode a key source of state aid for cities and towns, Treasurer Timothy P. Cahill said yesterday.

"The impact on the economy has reached the state lottery," Cahill said at a luncheon at the Seaport Hotel in South Boston. ". . . We are faced with something affecting us at every level."

If Cahill's predictions come true, state lottery revenues would decline by $75 million. The net loss is expected to be only about $17 million, because most of the money from lottery sales is used in payouts to winners.

"I am not complaining about people spending less on the lottery," Cahill said. "It's probably a good thing that they're being smart and they're not trying to game or gamble their way out of their problems. . . . But it has an impact."

Cahill said he would immediately cut the lottery's $96 million operating budget by $3 million, averting layoffs but trimming costs from things like an antilitter program and bonuses that go to the highest-selling agents. It would be up to the Legislature to decide whether to replace the remaining $14 million shortfall with money from the rainy day fund or some other source.

"In one sense, it's small potatoes," said Michael Widmer, president of the Massachusetts Taxpayers Foundation. "But it's just more bad news.

"It's another example of how state revenues are getting hit on every front," he said. "What's striking about this fiscal crisis is that literally every source of revenue is being hit: sales, corporate taxes, capital gains, and the lottery."

Cahill, who was one of the biggest proponents of licensing casinos in Massachusetts, also suggested yesterday that casinos would not be an easy sell now. The current economic downturn has shown that gambling is not immune from financial problems, he said.

State officials also would not be in a good position to bargain with casino developers if they are looking for quick revenue sources, he said.

"Even the states that have casinos are struggling with ways to pay for their budgets," Cahill said. "I know the debate will come back up; there's no way it won't come back up. But I hope we're not seduced by the lure of easy money."

Governor Deval Patrick has not said whether he plans to refile his plan to license three resort casinos in Massachusetts.

Casino gambling has been down for several months, in part because casinos rely on patrons spending extra money for travel, entertainment, and hotels.

But the Massachusetts State Lottery had been fairly strong until the past few weeks, when the economy as a whole started taking a more dramatic nosedive.

Lottery revenues, which were up 2.2 percent just five weeks ago, are now down 1.3 percent over last year, said Cahill, attributing the decrease to residents cutting back on everything from gasoline to groceries.

Scratch tickets, which represent about 70 percent of lottery revenues, are taking one of the biggest hits. The scarcity this year of large jackpots, which dramatically boost sales, also has hurt revenues.

Other states also are experiencing declines in lottery revenue. Kansas lottery officials, for example, announced last week that sales were down 4 percent this year, or about $2 million.

"The people who play the daily number will keep on playing," said the Rev. Richard McGowan, a Jesuit priest and Boston College economics professor who has written books about the gambling industry. "But it's now hit the point where $20 tickets, when you're facing unemployment, it hurts."

In public remarks delivered during a luncheon at the Seaport Hotel, Cahill also criticized the governor and the Legislature for not seeing some of the early warning signs of an economic downturn.

"Unfortunately we didn't take some of the steps that I think we should have taken - put more money in our rainy day account, cut spending so that we weren't in a structural deficit, and pare back the growth of programs in the state," Cahill said. "That is what has led us to where we are today."

Patrick, who in July began planning a number of spending controls, unveiled a plan last week to close a $1.4 billion budget gap through a variety of measures, including eliminating 1,000 state jobs through layoffs, retirements, and not filling vacant positions.

Cahill urged the Legislature to reject two primary components of the governor's plan. He said the state should avoid using $200 million in reserves, as the governor has asked for, and should not slow down the rate of pension fund payments.

Under the current schedule, the state would fully fund the state's pension fund by 2023, but the governor wants to extend this schedule until 2025.

"I would prefer to see that amount of money cut, as opposed to drawing it from those two sources," said Cahill, declining to say where he would make the cuts.

"The governor made the decision to prevent increased pressure on property taxes and to protect vital local services," said Kyle Sullivan, the governor's press secretary. "If the treasurer has other ideas on how to prevent property tax increases and protect cities and towns, we look forward to hearing them."

Matt Viser can be reached at maviser@globe.com.