No more $1 bil Powerball jackpots = higher property taxes in Wisconsin?

It may have been a regular update from the Legislative Fiscal Bureau, but when they released this paper on the state’s Lottery Fund, it set off serious alarm bells to Republicans and WisGOP legislators. It is likely one of the main reasons why budget proceedings are now on hold, because it has hampered the chances of Scott Walker being able to claim in the 2018 elections that "I cut property taxes."

For background, Wisconsin’s Lottery Fund matters to politicians because most of the “profit” that comes from those games is then kicked back to homeowners in the form a property tax credit. Last year, there was a sizable increase in that tax break, in no small part it was because of a huge increase in sales in early 2016 due to a record Powerball jackpot. That hasn’t happened in the last year, and the LFB says it is a reason that lottery sales have gone down.

5. On-line game sales appear to be lower in 2016-17 than estimated in October, 2016, primarily because large Powerball jackpots, which can increase sales dramatically, have not been generated in 2016-17 as often as they were in 2015-16. The Powerball game accounted for slightly more than 48.5% of all on-line (lotto) game revenue in 2015-16. In 2015-16, there was an occasion when the Powerball jackpot grew high enough to attract weekly sales of more than $20.0 million for at least a two-week period. In 2016-17, there have been no weeks in which Powerball sales have exceeded $5.0 million. Average weekly sales for Powerball tickets in 2015-16 exceeded $2.15 million per week. By contrast, in 2016-17, average sales through April, 2017, have been about $1.52 million per week. Total Powerball sales this year are not likely to reach the estimate of sales made in October, 2016. The reestimate of on-line ticket sales in 2016-17 would decrease from $232 million to approximately $213.5 million….

7. In Lottery's third quarter report dated May 9, 2017, Lottery indicated that "lottery sales were $151.8 million for the third quarter of fiscal year 2017, down 21.3% from the same quarter last year. The Wisconsin Lottery experienced unusually high sales in the third quarter of fiscal year 2016 when the estimated annuity jackpot for Powerball exceeded $1.5 billion."

8. Total ticket sales during the 10-month period, from July, 2016, to April, 2017, have been lower ($497.2 million) than during a similar period in 2015-16 ($527.3 million). In comparison, however, ticket sales into 2014-15 for the same period, were $480.4 million. While total year-to-date sales in 2016-17 are lower than 2015-16, the sales exceed 2014-15 and are more in line with prior experience. For 2016-17, total sales are lower primarily because no large Powerball jackpots have materialized to date in 2016-17 and, as a result, on-line sales have fallen behind projections. Given that there is only one month left in the 2016-17 fiscal year, it is very unlikely their total ticket sales of $617.4 million for 2016-17 will be realized. As a result of overall sales trends in 2016-17, total sales estimates are reestimated downward to $597.3 million. This is a 3.2% reduction from the October, 2016, estimate.

9. The 2016-17 reestimate is required to establish more accurately the year-end condition of the lottery fund. The lottery and gaming credits that were paid in 2016-17 were determined in October, 2016, and were paid at the certified level. A reestimate of 2016-17 sales at a lower level will have the effect of reducing the lottery fund's reserve (set each year by statute at 2% of estimated gross revenue) and will result in a lower opening balance in the lottery fund on July 1, 2017.

And having less money in the Lottery Fund means that there’s less to give away for property tax relief. This means higher property tax bills for the average homeowner, and this effect will be especially noticeable with the tax bills that are slated to go out in about 6 months.

In fact, the lower Lottery Credit will mean property tax bills will go UP by nearly $27 million statewide this winter, and won’t get much lower in 2018.

Lottery credit, 2015-2019
2015-16 $158.09 million
2016-17 $183.43 million
2017-18 (proj.) $156.50 million
2018-19 (proj.) $165.10 million

Gee, who could have known that blowing the one-time boost in lottery fund sales from that major Powerball jackpot wasn’t such a great plan? Oh wait, THIS GUY DID.

So might it be a good idea to have a JFC member object to this one-time windfall, and perhaps discuss smoothing out the amount of money given out in the lottery credit over 2016 and 2017? For example, you could reduce that $185.3 million to something like $170 million for this year (which still gives a nice bump in the lottery credit for this year), and then if projections hold for Fiscal Year 2017, you can increase the credit again for 2017 tax bills, keeping taxes lower in both years instead of the roller-coaster ride. Especially given that those 2017 property taxes would be on the last property tax bills before the 2018 elections for governor, it might be in the interest of both parties to have those bills staying stable or declining vs going up.

Let's see if any members of JFC step up, because the huge increase in lottery sales that we saw in FY 2016 shouldn't be relied upon for the future, and giving some breathing room for the Lottery Fund in this year seems like a more prudent option vs giving everything away in a larger property tax credit this winter. But then again, I don't make a living by striking political poses to try to trick rube voters, so what I think is the right move might not be what the crew at the Capitol decides on.

So due to the short-sightedness of Republicans on the Joint Finance Commission (and Democrats for not challenging this and making them reconsider the giveaway in public), Wisconsin homeowners will be paying higher property taxes this Fall due to lottery sales returning to normal in Wisconsin.

UNLESS…..there’s a huge jackpot that leads to a massive amount of ticket sales in June. And right on cue, Powerball is up to $375 million for Wednesday’s drawing. And I’m planning to do my part and stupidly throw away a few bucks on a fantasy hope to try to lower property tax bills.

But you know who isn’t hoping me or any other person wins for the next 3 weeks? Scott Walker and the Wisconsin GOP, because a huge Powerball jackpot might be one thing that keeps Wisconsinites from having higher property tax bills before the 2018 elections. Funny how linking your hopes for political talking points with gambling ends up being so fragile, isn’t it?

PS- As if we don't see enough Wisconsin Lottery ads during Brewer games and local news, Walker also wants to add another $3 million a year in ad money for the Lottery over the next 2 years, and the LFB is actually counting on extra sales from those ads to more than make up the difference, and be part of that $8.6 million increase in the Lottery Credit for the winter of 2018.

So get ready to see a lot more of this in coming months.