E-pulltabs: A fatal case of ‘I told you so’?

Forecast renews talk of stadium financing ‘Plan B’

Minnesota Management and Budget Commissioner Jim Schowalter went before the House Ways and Means Committee on Monday to give an overview of the February forecast, which had cut the projected budget deficit from $1.1 billion down to $627 million over the next two years. That was good news for legislators tasked with filling the gap this session — but members of the committee, Republicans and DFLers alike, were more interested in talking about a small pot of revenue being generated by electronic pulltab games.

It was one of the only pieces of bad news when the forecast was released late last week: There’s a continuing shortfall in revenues from the “e-pulltab” games that are expected to pay the state’s $348 million share of construction costs for a new Minnesota Vikings stadium. Initial estimates were that the state would receive nearly $150 million in revenue from the charitable gambling expansion in the 2014-15 biennium — a figure many legislators scoffed at as the bill was being crafted last year. The games have been slow to catch on, and that number has been reduced to roughly $60 million in the current forecast.

Legislators face a politically unsavory alternative if the gaming revenues don’t pick up by next year. That’s when the state will have to start paying off debt service on stadium construction bonds to the tune of $20 million for the 2014 fiscal year and about $33 million annually after that. If e-pulltabs don’t pick up the pace, that money will come right out of the general fund. Schowalter acknowledged that the numbers look grim now, but said he feels confident the revenues will start picking up later in the year. Legislators in the committee were less confident.

“If any of you think you aren’t voting for general fund money for the Vikings stadium, that is simply not the way this is going to happen,” St. Paul DFL Rep. Alice Hausman told the committee on Monday, remembering her speech to members the day the stadium bill passed off the floor last spring. “There was a very clear telling of the truth on the House floor.”

Minneapolis Democratic Rep. Phyllis Kahn agreed. “I hope all of you who voted for the Vikings bill are feeling appropriately chagrined,” she said.

With regard to e-pulltabs, the phrase “Plan B” has already entered the lexicon in St. Paul. House Commerce Chairman Joe Atkins, who was highly critical of the e-pulltabs plan last year, said he’s having discussions about alternative proposals. Among the ideas being floated around the Capitol is backup revenue generated at a racino, and another that would tweak state gambling laws to allow electronic pulltabs to expand to iPads handed out to people waiting for a flight. Atkins thinks a potential backup revenue source should be considered this year, but has been quiet as to what that plan could entail. “I think before a rainstorm comes is a good time to buy an umbrella,” he said.

Schowalter on defense

Part of the reason for the lag in revenues is an unexpectedly slow rollout of the games. That has surprised budgeting officials, who previously estimated that roughly 900 bars would be offering the games by February 1. Only 130 bars had the games by that time. Schowalter said the administration has delayed the bond sale from March to August this year to allow more time to approve vendors, market the games and let revenues pick up.

Legislators pressed Schowalter about a potential backup plan, but the budget commissioner stressed that any talks should be about improving the current funding scheme. “The governor really is looking at the Vikings stadium as it is currently stated and trying to make it work,” he said. “This is a place where I think we need to do better. We had hoped that this would run faster than it is, and I think it is up to all of us how we can do this better, whether that’s management changes, law changes [or] oversight changes.”

Under the stadium bill, Schowalter has the option to activate so-called “blink on” revenue generators — a sports-themed lottery game and a luxury suite tax — to help fund the project in lieu of robust e-pulltab dollars. Schowalter said those blink-on sources could be discussed later this summer if e-pulltabs are still lagging. But critics have their doubts that those options would do enough to fill the gap.

Considering the next step

DFL Senate Commerce Committee Chair James Metzen shares the concerns of his House counterpart.

“I thought a year ago, ‘I hope I’m wrong about this,’” he said. “I didn’t think it would get enough funding at the time, but I had hopes that with enough marketing, it would work out. I do have my concerns. I don’t know if we can realistically get through this year without looking at other options.”

Both Atkins and Metzen have been approached with ideas from outside parties on how to fill the gap. There’s still a wealth of funding mechanisms floating around that were discussed as part of the stadium bill but were ultimately rejected. GOP Rep. Tom Hackbarth wants one of those — a proposal to build a racino at Running Aces Harness Park — to be resurrected this session. He said VFWs and bars in his district have no interest in linked bingo or e-pulltabs.

“Checking with folks now, they don’t want these things. I don’t know where we’re going to get the money,” Hackbarth said. But few expect a racino to pass after a historic deal cut last year by the Shakopee Mdewakanton Sioux community and Canterbury Park, a quid pro quo that fattened purses for the track while also putting a stop to the Canterbury’s lobbying effort to build a racino.

Metzen says he’s intrigued by a different idea — to allow e-pulltabs to be played in the airport concourse area while people are waiting for their flights. Paul Cassidy, a lobbyist for the airport concession company OTG Management, says the company has distributed more than 2,000 iPads in the Minneapolis St. Paul International Airport’s Concourse G area, which are currently used for people to order food or drinks. OTG wants to add electronic gambling to the services provided. “I think that could possibly work,” Metzen said.

There’s also no revenue projection for the bill yet, and gambling with a debit or credit card — which would be required in the proposal — could worry some of the more gaming-wary legislators. Cassidy says it’s a more controlled form of gambling. “People have a limited amount of time when they are waiting in an airport,” he said. The Minnesota Gambling and Control Board recently gave the OK for other bars at the airport to start using games.

But the administration and some lawmakers want to see legislators try to tackle marketing and oversight of the current plan. Part of the trouble has been a lack of marketing and visibility for the games, as well as lingering uncertainty about who is responsible for promoting them.

Allied Charities of Minnesota, the group partnering with the state on the e-pulltabs rollout, has hired Horner Strategies to help them with public relations. The idea is market e-pulltabs to their members before launching a public campaign, but money is tight. “This is not something we are used to,” said Allied Charities president Al Lund. “We barely break even most years, and we keep a little surplus for years like this.” Lund said the state hasn’t come forward to volunteer to take on marketing for the games, but he’s not sure if it should be the state’s responsibility either.

Some legislators want to change this. “Somebody should decide whose job it is and assign some responsibility,” said GOP Rep. Jim Abeler. “Somebody needs to be in charge and that’s our job as overseers. That would be a good proposal.”