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In 1988, several years of debate over creation of a state lottery resulted in the legislature's decision to place the issue before the voters. A constitutional amendment to relax the constitution's ban on lotteries to allow a state-operated lottery was approved by the voters at the 1988 election with a 58 percent majority, and legislation to create the lottery was enacted the next year.
The 1989 law made the lottery a state agency but one with an unprecedented decree of autonomy. Lottery funds were established outside the state treasury and the lottery director, while still a gubernatorial appointee, was largely insulated from politics. A lottery commission was established, but its function was strictly to advise the director. The future direction of the lottery was indicated by a legislative requirement that the lottery pay out as prizes at least 45 percent of gross receipts from on-line lottery games (games such as numbers and lotto that are played with computer terminals), and at least 50 percent, eventually reaching 60 percent, of gross receipts as prizes for instant games.
The Minnesota State Lottery began selling tickets in April of 1990, starting with only instant games. In August of that year the first on-line games were added, as well as the multistate LottoAmerica game and a daily numbers game. The Minnesota-only Gopher 5 Lotto game was added in 1991, and LottoAmerica became Powerball in 1992.
About 59 percent of all receipts from lottery ticket sales goes back to players as prizes, one of the highest such percentages in the country.
Another 5.5 percent goes for lottery expenses. This percentage is capped at 9 percent by state law. This total includes advertising costs amounting to about 1.2 percent of total sales, below the maximum percentage of 2.75 percent allowed by law. Another 6 percent of gross sales went for commissions and incentives to the lottery's statewide network of approximately 3,000 retailers, and 3.4 percent of gross sales when to expenses for tickets and online vendors.
About 26 percent, or $106.2 million in fiscal 2005, went to the state either as net profit or in-lieu sales tax, or as contributions to the state's compulsive gambling program and state agencies that provide services to the lottery.
The legislation that placed the lottery amendment on the 1988 ballot also provided that the net profits from the lottery would be divided equally between two new funds. The first was an environmental trust fund for environmental and natural resources projects. The second was a fund to finance the new Greater Minnesota Corporation, a quasi-entrepreneurial agency within state government created primarily to enhance economic development and technology transfer outside the metropolitan area.
Even though this allocation was presented to the voters as part of the campaign on behalf of the lottery amendment, the legislature began making changes in it almost before the first ticket was sold. The original allocation remained in effect only for fiscal 1990, the lottery's first year of operation. For fiscal 1991, the legislature reduced the environmental trust fund's share from 50 percent to 40 percent and the Greater Minnesota fund's share from 50 percent to 25 percent. The remainder went for capital improvement projects in natural resources and state universities. To prevent further reductions in the environmental trust fund's share the legislature placed on the ballot, and voters subsequently approved, a constitutional amendment to guarantee 40 percent of net lottery profits to the fund until 2000. (A subsequent constitutional amendment passed in 1998 extended the dedication until 2025).
For fiscal 1992 the legislature changed the lottery allocation again, dedicating the 60 percent of the net profits not guaranteed to be in our environmental trust fund to the state's general fund. This 60/40 allocation has remained in effect since then.
An additional source of state revenue from the lottery has been a payment of 6.5 percent of gross receipts in lieu of a sales tax on lottery tickets. This in-lieu sales tax was dedicated to the state general fund until fiscal year 2001. Most of those revenues are now dedicated to the Game and Fish Fund and Natural Resources Fund.
Since the beginning of the lottery the legislature has used some of its revenues to fund the compulsive gambling program in the Department of Human Services. This spending is now at $1.9 million per year.
The Minnesota State Lottery's web site (www.mnlottery.com) contains information on lottery games, characteristics of lottery players, details on where the lottery dollar goes, and the lottery's annual report.
July 2006