08:56 PM PST on Sunday, January 23, 2005

Associated Press

SALEM -- The Oregon Lottery Commission is to decide Wednesday on Gov. Ted Kulongoski's proposal to add electronic slot machines to its selection of games.

Since Kulongoski picks the commission, approval is virtually certain. Less certain is how it will affect the share that goes to tavern owners and other lottery retailers.

(AP File Photo)

Oregonians don't want a tax increase, the Legislature is chest-deep in red ink, and some say a larger share of the take should go to the state.

Retailers, who earned $164 million from video poker in 2004, have sought the new machines for years but now say they would prefer to stick with their current contracts rather than accept Kulongoski's trade-off.

Lottery retailers have helped turn the Oregon Restaurant Association into one of Salem's strongest lobbies.

Advocates for more money for schools such as the Oregon Education Association also have jumped in, claiming retailers have gotten bloated profits since 1992 and that it's time to put more of the money into education.

Lottery manager Dale Penn's job is to advance Kulongoski's proposal of using the extra money from the new machines to stabilize state trooper funding.

Penn has tabled his initial proposal to revise the retailers' six-year video-poker contract that went into effect in July.

He said if the slots are approved he expects to seek a new deal in March that lowers their share.

He said the slots will lure new business to the establishments.

Lottery retailers say they've taken enough hits, including a 10 percent reduction effective with the in the 2004 contract. A tentative proposal offered by Penn would replace that contract with an 11 percent cut, with the expectation that electronic slots would more than make up the difference.

"We currently have a six-year contract. Why should we take a pay cut again?" asked Scott McComas of Jammer's Bar and Grill in Salem.

Fifty-three bars and restaurants in Marion and Polk counties collected at least $100,000 in video-poker profits last year.

Studies commissioned by the state conclude that retailers would profit nicely if their share of profits was sliced in half, or even lower, bringing them more in line with rates paid by other state lotteries.

Portland economist Joe Cortright authored one such study.

"People are always saying we ought to run public enterprises more like a business," Cortright said. "From a business and an economic standpoint, this doesn't make a lot of sense to the state."

Retailer's profits have dropped from a 35 percent share in 1992 to 28.8 percent in the 2004 contract. Penn's initial proposal for a revised contract would drop it to 25.6 percent, on average.

School advocates say that a 15 percent retailer profit rate would raise $85 million for the 2005-07 budget, on top of $120 million projected from electronic slots.

However, there is no contact clause requiring retailers to reopen negotiations.

School-funding advocates say another clause allows the Lottery to end a deal with 14 days notice.

The Oregon Education Association has suggested a 15-20 percent rate. The Oregon School Employees Association has filed a legal challenge to the 2004 contract.

Bill Perry, a lobbyist for the Oregon Restaurant Association, contends the termination clause is for problems with an individual retailer and doesn't allow blanket cancellations.