Committee hears recommendation to zero out liquor fund deficit, lowers sports-wagering projection

Commissioner Knight, head of the Department of Liquor and Lottery, told the Government Operations & Military Affairs committee that the department will recommend a budget adjustment to “zero out” a long-running deficit in the Liquor Control Fund and move going forward to transfer only net profit rather than larger historical transfers.

The recommendation comes after an internal review showed the deficit traces back to 2018 and is driven in part by accounting for long-term liabilities under GASB rules and by prior years when transfers from the Liquor Control Fund to the general fund exceeded the fund’s profits, Knight said. “When the GASB rules require the state to start planning for those pension and long term liabilities and started to see, a deficit,” Knight said. She added that her office will calculate transfers as “the revenue that the liquor fund generates, less expenses, less the long term liabilities, equals the net profit. And that's what we would be transferring moving forward.”

The commissioner told members the department has reduced operating growth under her leadership — averaging a 1.3% operating increase in the last two budgets compared with about 5.74% in prior years — and that staff will continue to limit operating-cost growth to help avoid future deficits.

Commissioner Knight also reviewed sports-wagering revenue performance and a revised projection. The department initially used a conservative first-year estimate based on a partial fiscal year launch; after early months of wagering activity and large sporting events the department revised earlier projections but expects variability. Knight described a decision to reduce the fiscal-year projection from $7.0 million to $6.1 million to reflect recent monthly receipts. She said the fiscal-year-to-date revenue-share is about $3.38 million and that roughly 78% of that revenue-share to date has come from NFL wagering. “We revised our projections because we would rather come in with a lower, more conservative, modest projections and exceed that than not meet the expectations,” Knight said.

Chris Rube of the Joint Fiscal Office reviewed related items in the governor’s proposed Budget Adjustment Act and flagged an increase to the transfer from the Cannabis Regulation Fund. Rube said the budget assumed a larger transfer from that fund but that available balance was higher than anticipated, and that statutory language earmarks 30% of excise-tax receipts for substance-misuse programming. Rube also noted the originally planned $3.0 million transfer from the tobacco litigation settlement fund would have left that fund in deficit; Finance and Management proposed removing that transfer to preserve the fund balance.

Committee members asked technical questions about how the state’s control model works and how pricing differs between control and license states. Knight explained that in the state’s control model the department purchases spirits from suppliers and the contracted retail operators sell it on the state’s behalf, with the state setting a uniform price at retail under its contract with the 802 spirit stores.

No formal committee vote or binding action was recorded at the meeting; staff and members said the material will be used to draft the committee’s budget adjustment memo to Appropriations. Committee staff outlined a schedule of upcoming testimony on cannabis industry matters and other BAA items in the days that followed.