Colorado Legislative Council Staff



Drafting Number:

Prime Sponsor(s):

LLS 99-0509

Rep. Taylor

Sen. Lacy


Bill Status:

Fiscal Analyst:

April 1, 1999

House Agriculture

Harry Zeid (303-866-4753)



Fiscal Impact Summary

FY 1999/2000

FY 2000/2001

State Revenues

   State Lottery Fund*:

       Net Machine Income

       License Fees

            State Lottery Fund Total Revenues







State Expenditures

   State Lottery Fund Expenditures and Distributions:

       Compensation to Licensees (Racetracks)

       Lottery Division Cost of Administration

       Technology Provider and Vendor Fees

       Constitutional and Statutory Distributions**

            State Lottery Fund Total Expenditures











FTE Position Change

13.5 FTE

16.0 FTE

Other State Impact: TABOR Impact

Effective Date: Upon signature of the Governor

Appropriation Summary for FY 1999-2000: $27,031,802 and 13.5 FTE Cash Funds Exempt to the Department of Revenue

Local Government Impact: None

            *State Lottery Fund revenue estimates have been rounded to the nearest $100,000. Columns may not add due to rounding.

             **Distributions to the Conservation Trust Fund, State Parks, and Great Outdoors Colorado would be cash funds exempt. Distributions to the General Fund would not be exempt from constitutional or statutory revenue or appropriations limits. This amount would not be appropriated to the Department of Revenue, as they are constitutionally and statutorily authorized distributions.

Summary of Legislation

            This bill allows licensed casinos, class B horse racetracks, and greyhound racetracks to apply to the Colorado Lottery Commission for the authority to act as lottery sales agents and operate video lottery terminals (VLTs) on their premises. The hours of operation for an agent to operate VLTs would be established by the Commission. The Colorado Lottery Commission would be granted the authority to issue and revoke licenses, approve games, control the number and type of VLT machines that may be used, and monitor the play from the machines through a central computer system. Licensed horse and greyhound racetracks would be authorized to install at least 500 VLTs per location.

            The VLT machine would accept currency in the form of bills, and would be capable of printing pay vouchers. Each machine would be connected to and be monitored by a central computer system that is under the control of the State Lottery Division. The bill states that the Division would use its best efforts to meet a target date of December 1, 1999, for the installation and operational readiness of the system.

            All expenses necessary to purchase or lease, install, maintain, and operate video lottery terminals, with certain exceptions, would be borne by the Colorado Lottery Commission or by a technology provider. The rate of compensation to be paid to sales agents that are pari-mutuel licensees or retail gaming licensees would be established at 45 percent of net machine income. In the case of a pari-mutuel licensee, 10 percent of the annual net machine income would be held by the sales agent to be used solely to fund purses for the live races at the licensed premises. The balance of the proceeds, net of prizes and expenses, would be distributed in accordance with Section 3(1)(b) of Article XXVII of the State Constitution, to the Conservation Trust Fund; to the Division of Parks and Outdoor Recreation; to the Board of the Great Outdoors Colorado Trust Fund; and to the General Fund.

            The bill is assessed as having state revenue and expenditure fiscal impact. The bill would become effective upon signature of the Governor.

State Revenues

            It is assumed that each of the five racetracks in the state would be allowed to maintain 500 VLTs in FY 1999-00 (a total of 2,500 machines). The number of VLTs operating in the state is projected to increase to 2,813 in FY 2000-01, and 3,164 in FY 2001-02. It is also assumed that no limited gaming casinos would opt to participate in the VLT program. Total revenue (after payouts) is projected to be $43.5 million for the six months of operation during FY 1999-00 and $97.8 million during FY 2000-01. This sum is comprised of net machine income (NMI) of $43.2 million plus annual licensing fees of $300,000 for FY 1999-00, and NMI of $97.5 million plus annual licensing fees of $300,000 for FY 2000-01.

            Table 1 provides a distribution of projected net machine income between the state share, the 10 percent purse account, and the track/sales agent proceeds for FY 1999-00 through FY 2001-02. The bill specifies that the sales agents may retain 45 percent of net machine income. However, in the case of sales agents that are pari-mutuel licensees, the bill requires that 10 percent of NMI be held by the sales agent to be used solely to fund purses for live races at the licensed premises. The 55 percent state share minus administrative costs (including the fees for the technology provider) plus the additional license fees that will be collected will equal the distributable proceeds that will become available for constitutionally authorized distributions. The distributable proceeds among the constitutionally authorized recipients, as well as the state General Fund, are also identified in Table 1.

Table 1. HB 98-1358 Projected Revenues (millions of dollars)


FY 1999-00

FY 2000-01

FY 2001-02

Net Machine Income

Minus: 10% Purse Account

Minus: 35% Track/Sales Agent Proceeds

Equals: 55% State Share













55% State Share

Minus: Administrative Costs

  (Including Technology Provider Fees)

Plus: License Fees

Equals: Distributable Proceeds














Distributable Proceeds:

 Conservation Trust Fund

 State Parks

 Great Outdoors Colorado

 General Fund “Spillover”*

   Total Distribution
















             *According to State Lottery projections, the Lottery will exceed the GOCO cap in FY 1999-00 and FY 2000-01 (without the VLT proceeds). In FY 2001-02, the cap is within $0.1 million of being reached.

State Expenditures

            The State Lottery Division will require 13.5 FTE in FY 1999-00 and 16.0 FTE in FY 2000-01 to administer the provisions of the bill. A description of personal services costs include:


               8.0 FTE - Criminal Investigator II, (grade A44, step 1) in FY 1999-00 and 10.0 FTE in FY 2000-01. This will be necessary to perform investigative and compliance functions, including the licensing of the manufacturers of the VLTs, licensing of the racetracks as lottery sales agents, establishing security rules and regulations for each site, as well as to monitor compliance. The annual cost for investigators will be $455,986 in FY 1999-00 and $569,983 in FY 2000-01.

               1.0 FTE - Administrative Program Specialist III (grade H45, step 1). This individual will administer the central site system contract with the technology providers and act as a liaison between the Lottery Division and the vendors for problem resolution and systems development. Annual cost for this individual is $49,239.

               1.0 FTE - Applications Programmer III (grade H40, step 1). The Lottery MIS section will require additional support. Annual costs for application development will be $43,701.

               1.5 FTE - Accountant II (grade B31, step 1) in FY 1999-00 and 2.0 FTE in FY 2000-01. This will be to perform accounting functions associated with the new program, including assistance in the testing and development phase of the new product. Annual cost for financial control will be $59,456 in FY 1999-00 and $79,275 in FY 2000-01.

               2.0 FTE - Administrative Assistant II (grade G30, step 1). The administrative functions associated with issuing and tracking manufacturer licenses, tracking manufacturer licenses, key and support licenses, and VLTs will require 2.0 FTE. Annual cost for the administrative assistants will be $46,368.

            Projected annual expenses of the State Lottery Division for FY 1999-00 and FY 2000-01 are summarized in Table 2. These expenditures include personal services costs of $754,750 and 13.5 FTE in FY 1999-00, and $788,566 and 16.0 FTE in FY 2000-01. Other expenses total $397,052 in FY 1999-00, and $143,560 in FY 2000-01. The vendor fees to the technology provider for lease and maintenance of the equipment are assumed to be at a rate of 15 percent of net machine income.

Table 2. HB 99-1358 Projected State Lottery Division Annual Expenses


FY 1999-00

FY 2000-01

Personal Services

  Criminal Investigator II (8.0/10.0)

  Administrative Program Specialist (1.0/1.0)

  Applications Programmer III (1.0/1.0)

  Accountant II (1.5/2.0)

  Administrative Assistant II (2.0/2.0)

  Consulting Fees 

       Subtotal (13.5/16.0)















Operating Expenses


Leased Space

Capital Outlay - Equipment

Capital Outlay - Computer

Vehicle Lease Payments

Vehicle Operating Expenses


















Vendor Fees (15% of Net Machine Income)



Total Expenditures



Expenditures Not Shown

            Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note:


               health and life insurance costs;

               short-term disability costs;

               inflationary cost factors; and

               indirect costs.

Spending Authority

            The fiscal note implies that the Department of Revenue would require cash fund exempt spending authority out of moneys in the State Lottery Fund for allocation to the State Lottery Division for compensation to licensees ($15,100,000), distributions to the purse account ($4,300,000), administrative functions ($1,151,802), and technology provider and vendor fees ($6,480,000) in the amount of $27,031,802 and 13.5 FTE in FY 1999-00 in order to implement the provisions of the bill.

Departments Contacted