Wednesday, September 28, 2016

2016 lottery boom might mean a nice one-time prop tax break. Should it?

Since I'm a nerd, I was cruising by the Legislative Fiscal Bureau's reports page, and saw the annual release of the Wisconsin Lottery's final figures for Fiscal Year 2016, and the resulting property tax relief that will come from it. And it turned out to be a banner year for lottery ticket sales, partly boosted by the $1.3 billion Powerball jackpot in January and other 9-figure pots over those 12 months.

In fact, ticket sales for Fiscal Year 2016 exceeded March's projections by huge margins. And it wasn't just the bump from the massive Powerball jackpots that did it.

FY 2016 Lottery sales vs March 2016 projections
Instant Scratch
March 2016 projection $356.2 million
FY 2016 Sales $378.8 million (+6.3% vs projections)

March 2016 projection $0.974 million
FY 2016 Sales $1.131 million (+16.0% vs projections)

March 2016 projection $223.0 million
FY 2016 Sales $247.2 million (+10.9% vs projections)

Prize payout also exceeded projections by nearly $23 million, giving a payout rate of 59.4, slightly below the 60.27% projections from March, but in line with recent years. Still, the high ticket sales means that the lottery's "profit" for Fiscal Year 2016 ended up being well above what legislators counted on when the lottery credit was finalized for this year.

Projected net proceeds, lottery FY 2016 $154.1 million
Actual net proceeds, lottery FY 2016 $171.5 million

So that $17.4 million in added profit means that there is more money available to be refunded to Wisconsinites for property tax relief, and today's report indicates that the property tax credit for homeowners could go up significantly for the tax bills that people get in December 2016. This is a change from what has been a declining property tax credit in recent years, and a $3.2 million drop in the credit that was originally projected for this year.

Actual and projected property tax credit 2014-2017
2013 $168.2 million
2014 $166.0 million
2015 $157.8 million
2016 (proj.) $185.3 million

If the lottery tax credit is indeed 17% higher than it was in 2015, based on my last property tax bill in Madison, that means I'll be looking at around $20-$22 in savings for this year's property tax, instead of the increase that was looming. With property values continuing to jump in many parts of the state due to interest rates and home inventories staying low, having a bigger lottery break could offset some of the inevitable increases in property taxes that'll result from those rising values.

However, this one-time bump in lottery proceeds sets up an interesting decision for JFC lawmakers, who have until mid-October to decide whether to sign off on this amount for the 2017 lottery credit, or discuss it further. Because the Department of Revenue says that if lottery sales decline by $9.8 million from the high levels that we saw in Fiscal Year 2016 (which would still be well above what was sold in FY 2015), the lottery credit will still go back down to a more typical $163.5 million in 2017. This would mean into a property tax INCREASE for most Wisconsinites in 2017, on top of whatever increases may be coming from local government and other taxing entitites that year.

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.

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