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Written Testimony about Gambling Control Board Revenue Estimates

On April 27, 2012, I provided the following written testimony about the Gambling Control Board estimates to the Minnesota Senate Tax Committee hearing on SF 2391: Providing for a New National Football League Stadium.

Dear Chairwoman Ortman and Members of the Committee,

I have been asked to provide some information about the economics of revenue estimates for your consideration by members of the Legislature.  My testimony and all errors are my own.

As Yogi Berra might have said, “forecasting is difficult, especially when it involves the future.”  Yet forecasting the gross and net receipts and change in state revenue from the proposed changes in lawful (charitable) gambling is especially difficult.  It is so difficult that no economist can claim accuracy in forecasting lawful gambling revenue from the gambling behavior of Minnesota consumers encountering new forms of gambling.

Forecasting sales of any new product launch accurately for decades is an impossible challenge.  In this case, it would require knowing how consumers will respond to the novel forms of gambling versus existing gambling.  It also requires knowing how paper lawful gambling receipts and lottery sales will fall due to the newly introduced forms of gambling.

The multiple Revenue Analyses for HF 1486/SF 702 and HF 2810/SF2391 show the difficulty of this estimation because of their wildly different guesses.  In several of the early iterations of Revenue Analyses, the Gambling Control Board said:

This estimate assumes that 50% of paper pull-tabs and tip boards would be eliminated in FY 2012, 75% in FY 2013, and by FY 2014 95% of paper pull-tabs and tip boards would be eliminated.

Then beginning in December 4, 2011 the Gambling Control Board said:

The introduction of electronic pull-tabs and electronic linked bingo will reduce the amount of paper pull-tabs sold by 20%.

There is obviously a large difference in revenue between the Gambling Control Board’s estimate that 95% of paper pull-tabs and tip boards would be eliminated and its estimate that 20% would be eliminated.  One thing we know for sure is that not all of the Gambling Control Board estimates can be close to being correct.

It is hard to understand how the Gambling Control Board estimated that the new forms of gambling would reduce paper lawful gambling but not have any negative effects on lottery sales and state revenue from the lottery.  Perhaps they just didn’t consider effects on the lottery in their estimation process.  This is a significant omission.

I am not able to vouch for the estimates provided to you from the Gambling Control Board.  Those Gambling Control Board estimates are highly uncertain.

In addition, reporters Elizabeth Dunbar, Marlys Harris, and Don Davis quoted me about the uncertainty surrounding forecasting revenue from novel forms of gambling.