Revenue from voter-approved "sin taxes" grew in FY 10, but pace is slowing

In 2004, Oklahoma voters approved a series of measures intended to raise new revenues for education and health care through a state lottery (SQ 705 and 706), gaming compacts (SQ 712), and increased tobacco taxes (SQ 713).  OK Policy has now released a set of newly updated fact sheets that explains how these revenue sources operate and sets out out how much revenue each generates and where the dollars are allocated. You can access all three 1-page fact sheets as a single document, or you can download the PDF separately for the lottery, gaming and tobacco.

We found that during the most recently completed budget year, FY ’10, Oklahoma collected $335.4 million from these three revenue sources. This is an increase of $12.2 million, or 3.8 percent, from FY ’09, reflecting a clear slowdown in revenue growth from these sources compared to prior years. Some key findings:

• Gaming revenues continued to grow in FY ’10, reaching $132.1 million, an increase of $13.1 million, or 11 percent from FY ’09. Of total gaming revenues, 89.5 percent ($118.2 million) came from tribal gaming and 10.5 percent (13.9 percent) from gaming terminals at racetracks that were also authorized by SQ 712.  However, the growth in tribal gaming revenues slowed noticeably in FY ’10, which likely reflected both the weak economy (nationally, total casino gaming revenues and tribal gaming revenues fell in 2009) and the state gaming market approaching saturation;
• Tobacco revenues declined slightly in FY ’10, falling by 2 percent to $133.3 million. Of total revenues from the new tobacco taxes approved in 2008, $102.6 million was collected by non-tribal retailers and $30.7 million by tribal retailers. Tobacco sales have actually fallen quite sharply the past two years, from 313.8 million packs in FY ’08 to 262.8 million in FY ’10. Revenues have managed to hold steady due to the success of various measures aimed at curtailing the purchase and resale of cigarettes taxed under a tribal “exception rate” of just 5.75 cents per pack. Instead, most tribal tobacco sales are now taxed at a rate of 85.75 cents or 57.5 cents per pack, compared to the rate of $1.03 per pack for sales by non-native retailers. (See our discussion of this issue in this blog post from last fall);
• Net proceeds from lottery sales were $70.0 million in FY ’10, an increase of less than $1 million from FY ’09. Since 2005, lottery sales have remained remarkably consistent, coming in every year between $69 million and $72 million, regardless of the ups and downs of the economy, the addition of new lottery games, and growing competition from casinos and the new state lottery in Arkansas.

Overall, the promise of these revenue streams to provide additional revenues to help fund education and health care seems to have been fulfilled. However, as we stressed in this paper in 2008, while the new revenues generated by these so-called “sin taxes” have boosted funding for education and health care, these gains have been more than offset by the revenue impact of cuts to the personal income tax approved by the Legislature in the mid- and late-2000s. This trade-off of increased “sin taxes” for cuts to the income tax has placed more of the responsibility of paying for public services on the shoulders of lower-income taxpayers. And as we reach the point where revenue growth from the new revenue streams is slowing, and may soon even begin to decline, this is yet another factor contributing to the fiscal gap between the cost of services we are committed to supporting and the revenues we generate to pay for them.