New Mexico lottery spends the most on administrative costs

Sunday, September 03, 2006 posted 03:40 AM EDT

SANTA FE — New Mexico's lottery spends a far greater percentage on administrative costs than almost any other lottery in the nation, and as a result, risks having to make reductions in the lottery scholarship program if changes aren't made.

Those are the results of a report issued by Think New Mexico, a public policy group which in the past has successfully lobbied for full-day kindergarten, elimination of the food tax and creation of individual development accounts.

"This is the first year they're going to start dipping into the reserves, and they're going to be taking more and more out of the reserves unless something changes," said Fred Nathan, founder and executive director of Think New Mexico.

The group is proposing a regulation that would require at least 30 percent of the total revenue garnered by the lottery go toward scholarships. The percentage now going to scholarships is 23.97 percent, and is projected by the Lottery Authority to drop to 22.07 percent by 2010.

Tom Romero, CEO of the New Mexico Lottery Authority, declined a request to be interviewed about the report.

"The New Mexico Lottery received the most recent report by Think New Mexico late Thursday afternoon," Romero said in a prepared statement. "Think New Mexico has obviously devoted much time and effort to writing their report expressing their views. It would not be appropriate or fair to comment on this report until the lottery staff and I have ample time to thoroughly review their report and recommendations."

Think New Mexico first looked at the lottery last year, when it was seeking funding for Individual Development Accounts. The Legislature instead decided to finance those accounts through the general fund, but Nathan said their review of the lottery demanded further action.

"Even when we got the general fund money we said we still want to do something about the lottery because that is definitely broken and it needs a solution," Nathan said.

Of the 41 states that have lotteries, only four — Arizona, Iowa, South Dakota and Montana — spend a higher percentage on administration than New Mexico, according to La Fleur's 2006 World Lottery Almanac.

When Think New Mexico first looked at the lottery last year, then-CEO Tom Shaheen said costs are higher because vendors need a larger share of the sales to make up for a smaller volume.

"The smaller the lottery — and we're one of the smallest — the higher your vendor fees are going to be," Shaheen said, adding that the vendor contracts come up for bid in 2008.

But Nathan points out that smaller states like Delaware, North Dakota and Vermont spend a smaller percentage on administration, as do more rural states like Idaho, South Dakota and West Virginia.

Ten other states have passed legislation mandating at least 30 percent of lottery revenue go to beneficiaries. The Think New Mexico report notes that lawmakers had that expectation when the bill was first passed. The fiscal impact report then stated that 30 percent would go to beneficiaries.

New Mexico law does require that at least 50 percent of revenue go toward prizes. Nathan said they would oppose lowering that percentage, since it would likely result in fewer players.

Nathan proposed several areas where costs could be cut. For example, the state's contract with its online vendor, GTech, calls for that company to receive 8.52 percent of online sales. By contrast, the same company gets just 2.99 percent of the online sales in Idaho.

Nathan also suggested cutting the percentage paid to regular vendors, and trimming the budget for bonuses, incentives and promotional events.

But, he said as long as 30 percent of the proceeds go to beneficiaries, his group really doesn't care where the cuts are made.

"Rather than micromanaging the lottery, if you made it 30 percent, let them choose where to cut rather than us doing it," he said.

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