The following is a recommendation from Against the Grain, a series of proposals by the State Comptroller of Texas on how the state could enhance revenues and decrease expenditures:
Amend the Lottery Act to Abolish the Lottery Stabilization Fund
The state should amend the Lottery Act to abolish the Lottery Stabilization Fund requirement and use the income to fund critical services.
Background
The State Lottery Act requires the establishment of a Lottery Stabilization Fund. The fund will contain lottery revenue in excess of the Comptroller’s Biennial Revenue Estimate. The Lottery Stabilization Fund is then to provide revenue to the General Revenue Fund if the lottery fails to generate monthly revenue as estimated.
In months that lottery revenue exceeds one-twelfth of the annual estimate, the Comptroller is required to deposit $10 million plus the amount of net lottery revenue in excess of the estimate to the Lottery Stabilization Fund.
The Act provides only two circumstances under which revenue could be transferred from the Lottery Stabilization Fund to the General Revenue Fund. In months that lottery revenue is less than 90 percent of one-twelfth of the annual estimate, the difference is to be transferred from the Lottery Stabilization Fund to general revenue. The Act also provides for the transfer of one-half of the balance of the Lottery Stabilization Fund to the General Revenue Fund on the first day of every biennium.
In view of the seriousness of the state’s fiscal situation, the Legislature should set aside the stabilization fund requirement. The state already maintains a significant rainy-day fund, and effective revenue forecasting should be adequate to avoid problems with potential future revenue stream instability.
Recommendation
The state should repeal the provision in the State Lottery Act that establishes the Lottery Stabilization Fund. This action would provide additional revenue to the General Revenue Fund to be used for state programs at the Legislature’s discretion.
Implications
Releasing Lottery Stabilization Funds would increase the available revenue for state programs without increasing taxes. General revenue is reduced by at least $10 million in months when lottery revenue exceeds one-twelfth of the annual lottery estimate. In effect, the state is penalized for correctly estimating lottery revenue and operating the lottery efficiently. Repealing the provision that establishes this fund would remove this penalty.
This action would increase general revenue about $65 million per year in the next biennium.
1. Explain briefly how the comptroller’s recommendation would increase general revenue by $65 million per year. In what way would the proposal affect the fiscal well-being of the state?
2. What impact would the comptroller’s recommendation have on the state’s budget if the state were to prepare a “consolidated” budget—one in which all funds are combined?
3. With reference to this recommendation, what are the advantages and disadvantages of budgeting on the basis of individual funds as opposed to combining all funds?