Vermont Liquor and Lottery to reduce carryforward adjustment; commissioner points to accounting changes and policy shifts

Wendy Knight, commissioner of the Vermont Department of Liquor and Lottery, told the Ways & Means committee that the department is proposing a budget adjustment to reduce a carryforward direct application from about $20 million to roughly $9 million as part of a plan to eliminate a long-standing deficit in the Liquor Control Fund.

Knight said the department operates two enterprise businesses—the Division of Liquor Control and the Vermont Lottery—and also holds regulatory authority over online sports wagering, which launched Jan. 11, 2024. "We are given the authority by the state to run 2 businesses, and they are called enterprise funds," Knight said. "We run another business, the Vermont Lottery. That's also an enterprise fund."

The department attributes the historical deficit to several factors. Knight said a 2018 change in Governmental Accounting Standards Board guidance altered how long-term liabilities such as pensions and other post-employment benefits (OPEB) are recognized, increasing the liabilities the department must set aside. "If we did not have those long term liabilities the way they're, obligated, the net position of the department, Liquor Control Fund for FY24 would be 1,900,000 positive," she said.

Knight also described a 2019 change to the supplier excise tax that reduced rates for many suppliers and a related budgeting mechanism known as a "direct application," which transfers agreed amounts from enterprise fund receipts to the general fund early in the fiscal year. She said the combination of that excise-tax change, larger direct applications taken during COVID when retail sales patterns shifted, and a negotiated transition that moved ready-to-drink products into the private sector contributed to the department carrying the deficit. "So there are a few other things that are contributing to the deficit. But the idea is to 0 that out and to have the physical policy of not running deficits," Knight said.

Knight said the department currently contracts with three sports-wagering operators—FanDuel, Fanatics and DraftKings—and takes a revenue share from their operations. She characterized the first year of the program as a benchmarking period for revenue and responsible-gaming resources.

Committee members asked whether the department planned to continue building a deficit; a committee member's question was answered in the negative. Knight described the basic fiscal approach as: revenue minus expenses minus long-term liabilities equals net position, and that net position is what the department reports to Finance and Management as available for transfer.

Knight offered to return to the committee for detailed briefings on online sports wagering and a separate policy priority, online lottery, after the governor releases a budget. "The governor will give us, release its budget on Tuesday with a budget address and then we'll start talking," she said.

No formal action or vote on the budget adjustment was recorded during the session.

Ending: The department's proposed reduction in the direct application will be part of ongoing budget discussions after the governor's budget is released; Knight said she is available to brief the committee further on sports wagering and online-lottery policy developments.