How the Luck

Plummeting Lottery Sales Unlucky For New Jersey’s Public Worker Pensions

Lottery ticket sales are down across the United States, thanks to the COVID-19 pandemic.

However, in states like New Jersey, that means bad news for underfunded programs that rely on money from lottery ticket sales.

New Jersey’s Plummeting Lottery Sales Spell Trouble for Budget

Amid strict social distancing measures in New Jersey, all economic activity — lottery sales included — have been sputtering. But NJ’s chronically underfunded public-worker pension funds are suffering big-time as New Jersey Lottery revenues drop.

Lottery revenues are down more than 12 percent this fiscal year, compared with the same period last year, according to new data released by the Department of Treasury. In the month of March alone, the revenue drop-off was even more dramatic, reaching nearly 30 percent. March’s lottery revenues totaled just $78.2 million.

The New Jersey Lottery relies on retailers to sell lottery tickets. Those retailers are experiencing greatly reduced foot traffic amid the pandemic — and it’s too soon to predict when economic activity might get back to normal.

Unfortunately, lottery revenues serve as a dedicated source of funding for the public-worker pension funds. Lottery funds have been used in recent years to bolster state pension contributions that have been shorted in the annual budget for years. NJ started dedicating funds from the state lottery to the pension system in 2017.

Then-governor Chris Christie enacted it, saying that the “significant accomplishment” would leave the pension system “much better off than where we found it in 2010.” It carved out monthly revenues from the lottery as a dedicated source of state funding for the pension system, easing how much comes out of the annual budget.

Relying on Lottery Revenue Doesn’t Work in Economic Downturn

While Christie’s plan worked well for a short period when the economy was booming, it doesn’t hold up in a downturn. A lack of revenue means taking more money from the state budget or letting unfunded pension liability balloon even more.

However, the economic slowdown that’s been caused by the coronavirus outbreak has hit New Jersey particularly hard. And while lottery revenue shortfalls are putting pressure back on the state budget, it too is being strained by the ongoing pandemic.

There is one potential upside if the revenue sag persists, though. The private company that handles lottery marketing and sales duties, Northstar New Jersey, may not be able to earn year-end performance bonuses this year.

Their contract only provides bonuses for a certain amount of revenue generated during a 12-month “contract year.” In recent years, these performance bonuses have cost the state $30 million or more.

Kate Singer

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