Kansas legislators expressed disappointment delays with installation of Kansas Lottery ticket vending machines in retail businesses could deprive mental health facilities and treatment programs of up to $8 million annually pledged in a law adopted in 2018.
Meanwhile, members of the Legislature's joint budget committee agreed with auditors that greater oversight would be necessary in light of a report demonstrating appropriation of lottery revenue for economic development activities wasn't following state law.
The bipartisan budget committee found revenue generated by placement of automated ticket machines in businesses statewide wouldn't come close to meeting original projections. The equipment was expected to be operational last year, but installation of machines didn't begin until August. Kansas Lottery officials said 100 machines had been placed in businesses and the first phase of 270 machines could be in stores by March.
The state's network of mental health crisis centers and the Clubhouse social and vocational programs managed through the Kansas Department for Aging and Disability Services received no vending machine revenue last fiscal year despite a budget expectation of drawing as much as $4 million.
"We didn't know what the anticipated revenues were going to be, but yet it was allocated in the budget. We had to back fill it with state general funds. And, basically, we're going to have to do it again," said Rep. Troy Waymaster, a Bunker Hill Republican and chairman of the House Appropriations Committee.
In the current fiscal year, less than $150,000 had been transferred to KDADS from vending machine profits by mid-November. Lottery officials said revenue from the vending machines was continuing to rise. The state law authorizing the equipment dictated mental health crisis centers would receive a maximum of $6 million annually and the Clubhouse program up to $2 million annually from net profits on vending machine transactions.
Despite the shortfall, KDADS moved ahead with planning for a $1.9 million increase in spending on crisis stabilization centers and Clubhouse treatment services.
"There's probably a couple of lessons here," said Rep. Will Carpenter, R-El Dorado. "Not to spend money you don't have."
Matt Schwartz, director of finance with the Kansas Lottery, said the agency approached the transition to automated ticket dispensing in a methodical way. The lottery's obligation to maximize returns to the state prompted an evaluation process that led in October 2018 to the decision to pay for machines with lottery operating funds.
He said sites for vending machines were chosen to make certain the $10,000 to $15,000 cost of each machine was covered. The lottery's goal of making games convenient to retailers and players necessitated testing and training, he said.
"We've been meticulous in the testing and training of the retailer staff," Schwartz said. "We knew that if we put it out there and did it wrong, we'd lose the opportunity to continue."
Lottery officials expect the second phase of vending machine installations to be operational by March 2021. There is potential to place 500 ticket machines in the 1,700 establishments selling lottery tickets.
Overall, the Kansas Lottery reported $295 million in sales during the fiscal year ending in June. That was a 9.7% increase from $268 million reported the previous fiscal year. In terms of revenue transferred to the state, the lottery generated $74 million in the most recent fiscal year while $98 million was derived from the casinos in Dodge City, Pittsburg, Mulvane and Kansas City, Kan.
In October, the Legislature's division of post audit reported the state wasn't following Kansas law in allocating $50 million in lottery revenue dedicated each year for economic development. Only 18% of lottery proceeds appropriated to the Economic Development Initiatives Fund in the 2018 fiscal year adhered to intent of the Legislature when the program was established in 1986.
"I'm disappointed this has been abused for so long," said Sen. Carolyn McGinn, R-Sedgwick. "We're going to need to fix it."
Auditors recommended the Legislature establish an oversight committee to make certain lottery expenditures track state law or to amend Kansas law to mirror current practices.